macro final

d. considered as part of making a decision

rational choice requires that opportunity cost be a. ignored in making a decision b. considered for individual choices, but not for societal choices c. computed, but not actually used in making a decision d. considered as part of making a decision e. used as the sole decision criterion

b. opportunity cost

the highest valued alternative option that must be given up in order to choose an action is called its a. utility b. opportunity cost c. capital d. ceteris paribus

b. an opportunity cost is always present when scarce resources are used to produce a good

"there is no such thing as a free lunch" this statement best reflects the fact that a. consumers are unwilling to pay for a good unless it provides them with value b. an opportunity cost is always present when scarce resources are used to produce a good c. it generally requires enormous effort to search out the best place to eat lunch the value of a good to consumers will decrease as they have more of it

c. Failed to recognize that association is not causation

1. A student noted that the football team won by a larger margin when the third-string played more minutes. Therefore, he recommended that the third-stringers become the first team. His conclusion was probably erroneous because he a. Confused positive and normative analysis b. Committed the fallacy of composition c. Failed to recognize that association is not causation d. Confused macroeconomics with microeconomics

b. If Aisha stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game.

1. Which of the following best illustrates the fallacy of composition a. If Jamal had more money, he could afford to buy more goods b. If Aisha stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game. c. If the price of bread rose, consumers would buy less; if consumers bought less bread, the price of bread would rise d. High housing prices cause people to buy less housing, but an increase in income might cause them to buy more housing

d. If taxes are over 50 percent of national income, job creation falls.

1. Which of the following is a positive economic statement? a. Too much government spending is the biggest problem facing the U.S. economy b. Creating jobs is the most serious problem facing the U.S. economy c. Raising taxes provides additional revenue that should be used to finance health care. d. If taxes are over 50 percent of national income, job creation falls.

d. he firm's gross investment is $10 million, and its net investment is $3 million.

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct? a. The firm's gross investment is $7 million, and its net investment is $10 million. b. The firm's gross investment is $3 million, and its net investment is $7 million. c. The firm's gross investment is $7 million, and its net investment is $3 million. d. he firm's gross investment is $10 million, and its net investment is $3 million.

b) $600,000.

A firm purchases $400,000 worth of raw materials and pays wages and salaries of $300,000 and dividends of $100,000. If the firm sells its output for $1 million, the firm's value added to GDP is a) $400,000. b) $600,000. c) $800,000. d) $1,000,000.

b. capitalism.

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called a. the welfare state. b. capitalism. c. national socialism. d. a corporate economy.

c. you can only produce more of one good only if you produce less of another good.

A production possibilities curve indicates that when resources are being used efficiently, a. you can only produce more of one good only if you produce more of another good. b. you can only produce more of one good only if you lower its price. c. you can only produce more of one good only if you produce less of another good. d. it is impossible to expand the total output of goods over time.

b. his marginal benefit of the additional serving is greater than zero.

A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if a. his marginal benefit of the additional serving is at least $3. b. his marginal benefit of the additional serving is greater than zero. c. his marginal benefit of the additional serving is $9 or more. d. his total value from the meal exceeds $9.

b. an economic slowdown or recession

A rise in the price of oil would be most likely to cause which of the following in the United States? a. an economic boom b. an economic slowdown or recession c. a decrease in the general level of prices d. an increase in aggregate demand

b. either increases or decreases short-run aggregate supply and output.

A supply shock is a surprise occurrence that a. shifts the long-run aggregate supply curve to the right. b. either increases or decreases short-run aggregate supply and output. c. temporarily increases aggregate demand. d. temporarily reduces aggregate demand.

b. fractional reserve banking system.

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a a. federal reserve system. b. fractional reserve banking system. c. partially funded deposit insurance system. d. gold standard banking system.

a. an increase in the price level will not expand an economy's output capacity in the long run.

A vertical long-run aggregate supply curve indicates that a. an increase in the price level will not expand an economy's output capacity in the long run. b. outputs greater than the long-run supply constraint cannot be achieved. c. an increase in the price level will permit the economy to achieve a higher level of output. d. an increase in the price level will promote technological change and more rapid economic growth.

d. The people's ability to produce products and trade in free markets.

According to Adam Smith, what is the primary source of a nation's wealth? a. The amount of gold and silver in the government's possession. b. A spirit of cooperation in which people share according to their means. c. Strong central planning authorities. d. The people's ability to produce products and trade in free markets.

d. do nothing.

According to new classical economists, the most appropriate policy during a recession would be for the government to a. increase the minimum wage. b. impose wage and price controls. c. cut taxes and increase the budget deficit. d. do nothing.

d. do nothing.

According to new classical economists, the most appropriate policy during a recession would be for the government to a. increase the minimum wage. b. impose wage and price controls. c. cut taxes and increase the budget deficit d. do nothing.

c. an increase in aggregate demand and higher real output during that period. educated guess (not d)

According to the Keynesian view, the large budget deficits of 2008-2015 resulted in a. an increase in aggregate supply during that period. b. weak aggregate demand and a continuation of recessionary conditions. c. an increase in aggregate demand and higher real output during that period. d. higher interest rates and taxes that slowed economic growth.

d. both the market and the government may fail to meet conditions of economic efficiency; in each individual case, the choice of market or public-sector action requires careful evaluation.

An analysis of market failure and government failure indicates a. government decision making is always preferable to using markets. b. market decision making is always preferable to public-sector action. c. government action is necessary whenever market failure occurs. d. both the market and the government may fail to meet conditions of economic efficiency; in each individual case, the choice of market or public-sector action requires careful evaluation.

a. increase output and decrease prices.

An increase in capital formation that expands long-run aggregate supply will a. increase output and decrease prices. b. increase both output and prices. c. decrease both output and prices. d. decrease output and increase prices.

d. an increase in the living standards of most people.

An increase in per capita income will generally lead to a. more material goods, but a decline in the quality of the environment. b. a reduction in life expectancy because working conditions are less desirable. c. an increase in the number of hours worked by residents. d. an increase in the living standards of most people.

a. a cleaner environment and more time for recreation.

An increase in real per capita income will generally lead to a. a cleaner environment and more time for recreation. b. a reduction in life expectancy because working conditions are less desirable. c. an increase in the number of hours worked by residents. d. an increase in real GDP that is less rapid than the increase in population

c) the cost of buying the typical bundle of goods consumed by households is increasing. educated guess (not a)

An increase in the Consumer Price Index indicates that a) the real income of households is increasing. b) the purchasing power of the dollar is increasing. c) the cost of buying the typical bundle of goods consumed by households is increasing. the real net worth of consumers is increasing.

b. the marginal benefit expected from additional search exceeds the marginal cost.

An individual should continue to spend time searching for a job as long as a. all salary offers are below what the person expected. b. the marginal benefit expected from additional search exceeds the marginal cost. c. job openings are available in the individual's field. d. information is available that the individual has not yet collected.

d. all of the above.

An open capital market affects a nation's economic growth by a. channeling capital into productive projects and away from wasteful projects. b. rewarding investors who find the most productive projects and invest in them. c. making the lowest-cost capital available from around the world. d. all of the above.

a. a decline in interest rates, an increase in investment, and an increase in aggregate demand.

An unanticipated increase in the money supply will lead to Correct! a. a decline in interest rates, an increase in investment, and an increase in aggregate demand. b. a decline in interest rates, a decrease in investment, and an increase in aggregate demand. c. a decline in interest rates, an increase in investment, and a decline in aggregate demand. d. an increase in interest rates, an increase in investment, and an increase in aggregate demand. e. a decline in interest rates, a decline in investment, and a decline in aggregate demand.

b. a reduction in the actual rate of unemployment. educated guess (not a)

An unexpected sharp reduction in inflation will most likely result in a. the rapid growth of output and employment. b. a reduction in the actual rate of unemployment. c. a reduction in the natural rate of unemployment. d. a temporary increase in unemployment and a decline in real output.

c. No, it is not just employment, but employment that expands production of goods and services that others value highly relative to cost.

Are jobs the key to economic progress and the achievement of high income levels? a. Yes, as long as people are working, real income levels will be high. b. Yes, when full employment is present, income levels will be at their maximum. c. No, it is not just employment, but employment that expands production of goods and services that others value highly relative to cost. d. Uncertain, additional employment will increase real income only when the general level of prices is unchanged.

a) life expectancy and leisure time have also risen and infant mortality and illiteracy have gone down..

As per capita GDP has risen in the United States and other countries, a) life expectancy and leisure time have also risen and infant mortality and illiteracy have gone down.. b) life expectancy has risen but leisure time has gone down, while infant mortality and illiteracy have remained the same. c) various quality of life variables have been unaffected. d) most quality of life variables such as life expectancy and expenditures on leisure time activities have fallen.

b. $8.0 trillion

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices? a. $7.5 trillion b. $8.0 trillion c. $9.0 trillion d. $18.0 trillion

c. produce goods and services that people value. educated guess (not b)

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is its ability to a. use coercive force against adults to modify their behavior or force them to pay for a good or service. b. direct resources in a manner that serves the public interest rather than the private interest of individuals. c. produce goods and services that people value. d. escape the constraints imposed by scarcity.

c. the creation of the FDIC reduced the likelihood of bank runs.

Banks are considered a safer place to deposit money now than they were prior to 1933 because a. gold reserves have increased. b. reserve requirements are higher. c. the creation of the FDIC reduced the likelihood of bank runs. d. the commercial banks are no longer permitted to extend loans to the Federal Government.

b. rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class.

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was a. rational only if Ayana has not missed any other classes. b. rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class. c. irrational, because economic analysis suggests you should always attend classes that you have already paid for. d. irrational, because oversleeping is not in Ayana's self-interest.

b. discretionary fiscal policy.

Changes in government spending and/or taxes as the result of legislation, is called a. open market operations of the Federal Reserve. b. discretionary fiscal policy. c. balanced budget operations. d. discretionary monetary policy.

a. monetary policy.

Controlling the money supply to achieve desired macroeconomic goals is called a. monetary policy. b. cyclical policy. c. fiscal policy. d. industrial policy.

b. fluctuations in aggregate demand.

Cyclical unemployment is primarily caused by a. a large proportion of youthful workers in the labor force. b. fluctuations in aggregate demand. c. a lack of training on the part of job seekers. d. the failure of job seekers to search adequately for the available jobs.

b. Bank reserves will increase; there will be no change in M1. educated guess (not a)

Drawing on her account at Regional Bank, Samantha writes a check to Isabella, who deposits the check in her account at Local Bank. Once the check has cleared, which of the following will occur to the reserves of the banking system and the M1 money supply? a. Bank reserves will increase; M1 will increase. b. Bank reserves will increase; there will be no change in M1. c. There will be no change in bank reserves; M1 will increase. d. There will be no changes in either bank reserves or M1.

a. increased its purchases of financial assets and thereby injected additional reserves into the banking system.

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed a. increased its purchases of financial assets and thereby injected additional reserves into the banking system. b. increased its purchases of financial assets, which reduced the reserves available to the banking system. c. reduced its purchases of financial assets and thereby injected additional reserves into the banking system. d. reduced its purchases of financial assets and thereby reduced the quantity of reserves available to the banking system.

c. fell sharply; fell sharply

During the crisis of 2008 housing prices ________ and stock prices ________. (Fill in the blank) a. rose sharply; fell sharply b. fell sharply; rose sharply c. fell sharply; fell sharply d. rose sharply; rose sharply 

c. increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800.

During the past 1000 years, the income per person of the world has a. increased each century, and it is now five times greater than the level of 1000 years ago. b. risen rapidly in Western Europe, North America, Japan, and Australia, but there has been little change in income per person in other parts of the world. c. increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800. d. persistently increased, but the largest increases occurred during the 1200 to 1800 era.

c. increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800. educated guess (not d)

During the past 200 years, income per person has a. increased in the developed countries of Western Europe and North America, but declined in the rest of the world. b. declined in the developed countries of Western Europe and North America, but increased in the rest of the world. c. increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800. d. Increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800.

b. the monetary base more than doubled, but the M1 money supply increased much less rapidly.

During the three years following the financial crisis of 2008, a. the monetary base more than doubled and the M1 money supply increased even more rapidly. b. the monetary base more than doubled, but the M1 money supply increased much less rapidly. c. the monetary base fell by almost 50 percent, but the M1 money supply continued to grow at a steady rate. d. the monetary base fell by almost 50 percent, causing a sharp reduction in the M1 money supply.

b. changes in the personal benefits or costs of an action influence behavior in a predictable way.

Economic analysis is based on the premise that a. people are always fully informed when making choices. b. changes in the personal benefits or costs of an action influence behavior in a predictable way. c. people act only out of selfish motives. d. most human behavior is unpredictable.

a. vote trading among legislators.

Logrolling refers to a. vote trading among legislators. b. the tendency of voters to free-ride on the payment for public goods. c. the power of well-organized interest groups. d. the tendency of legislators to favor the interests of the timber (logging) industry.

a. relatively elastic because there are many substitutes for tacos.

Economists would say that the demand for tacos is a. relatively elastic because there are many substitutes for tacos. b. increasing because of reports of Mad Cow Disease. c. relatively inelastic because its demand curve is flatter. d. relatively inelastic because there are very few close substitutes available.

b. scarcity.

Every economy must ration goods in some way because of a. overpopulation. b. scarcity. c. the income gap between rich and poor. d. poorly-performing markets.

d. Scarcity

Every economy must ration goods in some way because of a. Overpopulation b. Poorly-performing markets c. The income gap between rich and poor d. Scarcity

b. directs the economy to full employment and resources into productive projects.

Expansionary fiscal policy during a recession is most effective when it a. creates jobs, even if they are on unproductive projects. b. directs the economy to full employment and resources into productive projects. c. substantially changes the composition of aggregate demand. d. provides members of Congress with large political contributions.

b. the opportunity cost in terms of forgone current income from the time spent attending college.

For most students attending state universities, the largest cost component of going to college is a. the cost of room and board. b. the opportunity cost in terms of forgone current income from the time spent attending college. c. tuition. d. the cost of books and supplies.

c. gross private investment.

Geri purchases a newly constructed house built by a private contractor. Her spending on the house is included in GDP as a part of a. personal consumption expenditures. b. depreciation. c. gross private investment. d. personal saving.

a. fall by 50 percent.

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would Correct! a. fall by 50 percent. b. rise by 50 percent. c. increase by 100 percent. d. decrease by 100 percent.

b. automatic stabilizers.

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called a. discretionary fiscal policy. b. automatic stabilizers. c. progressive taxation. d. price deflators.

c) local, state and federal governments.

Government purchases include spending on goods and services by a) the federal government only. b) state and federal governments only. c) local, state and federal governments. d) local, state and federal governments, as well household spending by employees of those governments.

c. the market value of the output produced during a period and the cost of producing that output.

Gross domestic product is a measure of both a. the market value of a nation's capital assets (physical capital) and the costs that were incurred producing those assets. b. the expenditures on and sales revenues derived from all goods and services exchanged during a period. c. the market value of the output produced during a period and the cost of producing that output. d. the asset holdings of people and the happiness that they derived from the ownership of those assets.

b. produced domestically during a period.

Gross domestic product is equal to the market value of all goods and services a. exchanged during a period. b. produced domestically during a period. c. produced by the citizens of a nation during a period. d. produced domestically during a period minus the depreciation of productive assets.

a. grown less rapidly than their counterparts with smaller governments.

High income countries with larger governments as a share of GDP have generally a. grown less rapidly than their counterparts with smaller governments. b. experienced less deadweight losses resulting from taxes and/or government borrowing. c. seen the government decrease in size as real GDP rises. d. been able to be more economically efficient.

d. The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities. educated guess (not c)

How will an increase in government expenditures during a recession be reflected in GDP? a. An increase in government spending will reduce aggregate demand and decrease GDP. b. An increase in government spending will not affect GDP. c. An increase in government spending will increase GDP, but only if it is directed toward economically productive projects. d. The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities.

b. an increase in the exports of the United States.

If Europe and Japan experience rapid growth in their incomes, other things constant, this will cause a. a decrease in the exports of the United States. b. an increase in the exports of the United States. c. a decrease in the national income of the United States. d. a decrease in aggregate demand in the United States.

a. aggregate demand curve will shift to the left.

If a reduction in stock prices reduces the real wealth of Americans, the Correct! a. aggregate demand curve will shift to the left. b. long-run aggregate supply will shift to the left. c. general price level will increase. d. aggregate demand curve will shift to the right.

c. relatively elastic.

If a small percentage increase in the price of a good results in a rather large percentage reduction in the quantity demanded of the good, demand is said to be a. vertical. b. relatively inelastic. c. relatively elastic. d. robust.

c. Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. educated guess (not d)

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen? a. Currency holdings will remain the same, but the M1 money supply will fall. b. The amount of currency held by the public will increase. c. Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. d. The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

c. timed correctly.

If fiscal policy is going to exert a stabilizing impact on the economy, it must be a. instituted by the Federal Reserve system. b. expansionary during an economic boom but restrictive during a recession. c. timed correctly. d. passed by a three-fifths majority in Congress.

b. sold $6 billion more goods and services during the year than they produced.

If inventory investment during a year was minus $6 billion, producers must have a. produced only $6 billion of new capital assets during the year. b. sold $6 billion more goods and services during the year than they produced. c. added goods valued at $6 billion to their stock of unsold goods and raw materials. d. produced new capital assets that exceeded the depreciation allowance by $6 billion.

d. Inflation during 2011 was 2 percent.

If nominal or money GDP increases 6 percent in 2011 (compared to 2010), and real GDP increases 4 percent over the same period, which of the following must be true? a. Exports exceeded imports. b. The general price level as measured by the GDP deflator fell during 2011. c. The economy entered a recession in 2011. d. Inflation during 2011 was 2 percent.

d. not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.

If policymakers cut taxes because they perceive that recession is a major threat, a proponent of the new classical view will be most likely to argue that the tax cut is a. highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy. b. highly inappropriate because it will exert a restrictive impact on aggregate demand, output, and employment. c. not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing and higher interest rates. d. not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.

c. aggregate demand decreases, which leads to movement along the short-run aggregate supply curve.

If the Fed decreases the money supply, a. aggregate demand and aggregate supply both increase. b. aggregate demand increases, which leads to movement along the short-run aggregate supply curve. c. aggregate demand decreases, which leads to movement along the short-run aggregate supply curve. d. aggregate supply increases, which leads to movement along the aggregate demand curve. e. aggregate supply decreases, which leads to movement along the aggregate demand curve.

d. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could a. decrease the reserve requirements imposed on commercial banks. b. purchase U.S. government securities and other financial assets in the open market. c. decrease the interest rate on loans extended to banks and other financial institutions. d. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

a. lower the discount rate.

If the Federal Reserve wants to increase the availability of money and credit, it can a. lower the discount rate. b. raise the reserve requirements. c. sell government bonds to the public. d. encourage banks to increase their prime lending rate.

b. the general level of prices during 2009 was 20 percent higher than during 2004.

If the GDP deflator in 2009 was 120 compared to a value of 100 during the 2004 base year, this would indicate that a. the inflation rate during 2009 was 20 percent. b. the general level of prices during 2009 was 20 percent higher than during 2004. c. the inflation rate during 2009 was 120 percent. d. real GDP was 20 percent higher in 2009 than 2004.

b. many firms will find production less profitable than they had expected and will decrease the quantity of output supplied

If the actual price level is lower than the expected price level reflected in long-term contracts, a. many firms will find production more profitable than they had expected and will increase the quantity of output supplied Correct Answer b. many firms will find production less profitable than they had expected and will decrease the quantity of output supplied c. many firms will find production more profitable than they had expected and will decrease the quantity of output supplied d. many firms will find production less profitable than they had expected and will increase the quantity of output supplied

d. not very sensitive to the price of the good.

If the demand for a good is relatively inelastic, this means that consumer purchases of the good are a. unaffected by changes in the income level of consumers. b. highly sensitive to the price of the good. c. unrelated to the price of the good. d. not very sensitive to the price of the good.

d. restrict bank lending by selling government securities.

If the economy is in an inflationary boom, the Fed would most likely a. encourage banks to provide loans by buying government securities. b. encourage banks to provide loans by raising the discount rate. c. encourage banks to provide loans by selling government securities. d. restrict bank lending by selling government securities. e. restrict bank lending by lowering the federal funds rate.

c. Aggregate quantity demanded is equal to potential output.

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is true? a. Aggregate quantity supplied is greater than potential output. b. Aggregate quantity demanded is less than potential output. c. Aggregate quantity demanded is equal to potential output. d. The aggregate demand curve is horizontal at the potential output level.

c. it will be able to reduce its outstanding debt.

If the federal government is running a budget surplus, a. its expenditures must be greater than its revenues. b. the supply of money will decline. c. it will be able to reduce its outstanding debt. d. the U.S. Treasury will have to borrow additional funds in order to cover the surplus.

NOT C

If the price of pizzas has risen from $4 to $5 at the same time that the price of an hour of aerobics class has risen from $20 to $30, then a) pizzas have become relatively more expensive. b) aerobics classes have become relatively more expensive. c) the relative prices of pizzas and aerobics classes have remained constant. workers' real income must have decreased.

b) the price level as measured by the CPI has increased by 10 percent.

If this year the CPI is 110 and last year it was 100, then a) the cost of the CPI basket of goods and services has increased this year by 110 percent. b) the price level as measured by the CPI has increased by 10 percent. c) the inflation rate for this year has increased by 10 percent over last year's inflation rate. d) All of the above are correct.

b. Produce a good that can be sold for more than its production cost.

In a market economy, what must an entrepreneur do in order to be successful? a. Purchase resources at lower prices than rivals. b. Produce a good that can be sold for more than its production cost. c. Obtain large subsidies from the government. d. Hire workers at low wage rates.

d. is not accounted for in GDP.

In recent years, people have benefited from greater amounts of leisure time. This trend a. has caused GDP to rise. b. has caused GDP to fall. c. made GDP fluctuate randomly d. is not accounted for in GDP.

b. cause GDP to understate the growth rate of real output and the improvement in the well-being of people.

In recent years, technological improvements and the Internet have substantially reduced transaction costs and expanded the availability of low-cost access to information, communications, and entertainment. Most economists believe that these changes a. cause GDP to overstate the growth rate of real output and the improvement in the well-being of people. b. cause GDP to understate the growth rate of real output and the improvement in the well-being of people. c. cause the consumer price index to increase more rapidly than the general level of prices. d. reduce the gains from trade and thereby cause GDP to decline.

b. The good is produced privately and consumers purchase it with their own money.

In the case of a private good, which of the following forms of economic organization will result in the strongest incentive for consumers and producers to economize? a. The good is produced privately and taxes are used to provide it to consumers free of charge. b. The good is produced privately and consumers purchase it with their own money. c. The good is produced by government enterprises and the cost of its production is covered by taxes. d. The good is produced by government enterprises and consumers purchase it with their own money.

c. inflation.

In the long run, the primary effect of rapid monetary growth is a. lower nominal interest rates. b. reduced unemployment. c. inflation. d. an increase in real output.

a. inappropriate because it would depress economic activity and lead to further increases in unemployment.

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was a. inappropriate because it would depress economic activity and lead to further increases in unemployment. b. appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment. c. inappropriate because it would decrease the money supply and, thereby, prolong the Depression. d. appropriate because it would stimulate economic activity and help end the Depression.

d. leave the interest rate, aggregate demand, and real output unchanged. educated guess (not a)

In the new classical model, a $100 billion increase in government purchases financed by borrowing will You Answered a. increase the real interest rate, which will crowd out private spending. b. lead to a $100 billion increase in real GDP. c. lead to a $400 billion increase in real GDP if the marginal propensity to consume is three-fourths. d. leave the interest rate, aggregate demand, and real output unchanged.

c. increase resource prices, lower profits, and lead to a decline in output. educated guess (not a)

In the short run, a price increase in the goods and services market will a. increase the purchasing power of money. b. improve producer profits and, thereby, induce suppliers to expand output. c. increase resource prices, lower profits, and lead to a decline in output. d. reduce the natural rate of unemployment.

a. output and employment rather than on prices. educated guess (not d)

In the short run, an unanticipated increase in the money supply will exert its primary impact on a. output and employment rather than on prices. b. prices; output and employment will be largely unaffected. c. interest rates; rising interest rates will stimulate additional saving. d. prices, if the economy operates at an output level below its long-run supply constraint.

d. excess aggregate supply of goods and services would place downward pressure on prices.

In the short run, if prices were above equilibrium, a. excess aggregate demand for goods and services would place downward pressure on prices. b. excess aggregate supply of goods and services would place upward pressure on prices. c. excess aggregate demand for goods and services would place upward pressure on prices. d. excess aggregate supply of goods and services would place downward pressure on prices.

a. an increase in real output

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy? Correct! a. an increase in real output b. a decrease in real output c. an improvement in technology, which will stimulate growth in the long run d. an increase in prices proportional to the increase in the money supply

b. 50 cents

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gas at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gas, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gas is a. Zero b. 50 cents c. $1 d. $1.50

c. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion.

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find a. it more attractive to raise taxes than to increase spending. b. it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. c. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion. d. budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion.

d. making a rational choice.

Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. To an economist, Jim is a. not fully considering the personal costs and benefits of his decision. b. not responding to the incentives he faces. c. making an irrational choice. d. making a rational choice.

d. true; since Smith can decide what computer to buy, but his individual vote is very unlikely to decide the outcome of a congressional election, he has more incentive to inform himself about the computer than the congressional election.

John Smith is a typical citizen. Economic theory suggests that he is likely to make a more informed choice when he buys a personal computer than when he votes for a congressional candidate. This view is a. false because the actions of legislators will exert a greater impact on Smith's welfare than will the purchase of the computer. b. false; Smith will tend to choose more carefully when he makes public choices than when he makes private choices. c. uncertain; it would be true if, and only if, Smith's spending on personal computers exceeds his tax bill. d. true; since Smith can decide what computer to buy, but his individual vote is very unlikely to decide the outcome of a congressional election, he has more incentive to inform himself about the computer than the congressional election.

d. powerful trade unions and large corporations made wages highly inflexible.

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because a. lower wages would cause the central bank to reduce the money supply and thereby prolong the recession. b. lower wages would stimulate inflation and thereby prolong the recession. c. market forces would quickly direct an economy back to full employment. d. powerful trade unions and large corporations made wages highly inflexible.

b. private sector spending will decline, and therefore government spending should increase in order to help maintain a high level of aggregate demand.

Keynesian economists argue that during a recession a. private sector spending will rise and therefore government spending should be reduced in order to help maintain aggregate demand at or near the full employment level. b. private sector spending will decline, and therefore government spending should increase in order to help maintain a high level of aggregate demand. c. private sector spending will decline, and therefore government spending should be reduced in order to avoid the crowding out of still more private sector spending. d. private sector spending will rise and therefore government spending should be increased in order to provide more stimulus for the economy.

d. 64 years.

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to a. 36 years. b. 44 years. c. 52 years. d. 64 years.

b. correctly anticipated the level of prices when they made the agreements.

Long-run equilibrium in the goods and services market requires that decision makers who agreed to long-term contracts must have a. incorrectly anticipated the level of prices when they made the agreements. b. correctly anticipated the level of prices when they made the agreements. c. correctly anticipated the natural rate of unemployment when they made the agreements. d. correctly anticipated actual GDP when they made the agreements.

I DONT KNOW educated guess (not c)

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in a. reserves and $1,000 in checkable deposits. b. liabilities and $2,000 in checkable deposits. c. checkable deposits and $0 in assets. d. assets and $0 in liabilities. e. reserves and $0 in liabilities.

d. is now approximately 100 percent of GDP, which is higher than at any time since the years immediately following World War II.

Measured as a share of GDP, the total federal debt a. increased during the 1990s, but it has declined substantially during the most recent decade. b. increased substantially during the recession of 2008-2009, but it is still well below the levels of the 1960s and 1970s. c. has steadily trended downward during both the 1990s and the most recent decade. d. is now approximately 100 percent of GDP, which is higher than at any time since the years immediately following World War II.

a. grown rapidly.

Measured as a share of national income, government expenditures on income transfers during the last 70 years have a. grown rapidly. b. declined substantially. c. been virtually unchanged. d. increased throughout much of that period, but they have declined substantially since 1980.

b. money is used to measure the exchange value and costs of goods, services, assets and resources.

Money is used as a unit of account. This means a. money cannot store value for use in the future. b. money is used to measure the exchange value and costs of goods, services, assets and resources. c. money has little or no intrinsic value. d. money is dependent on the quantity of gold held by the Federal Reserve.

d. increase savings.

New classical economists believe that an increase in deficit financing by the government will a. reduce government spending. b. increase consumption. c. reduce future taxes. d. increase savings.

b. increases, and the labor-force participation rate increases.

Nicole has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate a. increases, and the labor-force participation rate is unaffected. b. increases, and the labor-force participation rate increases. c. is unaffected, and the labor-force participation rate increases. d. increases, and the labor-force participation rate decreases.

c. GDP increases by $6.00.

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP? a. GDP increases by $1.50. b. GDP increases by $3.50. c. GDP increases by $6.00. d. GDP increases by $7.50.

d) fails to account for the introduction of new goods.

One of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the cost of living is that the CPI a) fails to account for consumer spending on housing. b) accounts only for consumer spending on food, clothing, and energy. c) fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. d) fails to account for the introduction of new goods.

d. acceptance of productive activities and rejection of unproductive activities.

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the a. rejection of productive activities and acceptance of unproductive activities. b. acceptance of both productive and unproductive activities. c. rejection of both productive and unproductive activities. d. acceptance of productive activities and rejection of unproductive activities.

a. more, so they are willing to spend more.

Other things the same, a decrease in the price level makes the dollars people hold worth a. more, so they are willing to spend more. b. more, so they are willing to spend less. c. less, so they are willing to spend more. d. less, so they are willing to spend less.

b. a measure of income per person educated guess (not d)

Per capita GDP is a. real GDP divided by the GDP deflator b. a measure of income per person c. a measure of resources available to each person d. an indicator of the overall production of a government

d. is the output an economy could produce at full employment.

Potential GDP a. is always less than actual GDP. b. is identical to actual GDP. c. measures inflation. d. is the output an economy could produce at full employment.

b. increase the rate of unemployment. educated guess (not c)

Spending programs that substantially alter the composition of aggregate demand will tend to a. decrease the rate of unemployment. b. increase the rate of unemployment. c. promote a more rapid recovery. d. reduce structural unemployment.

b. is the study of the decision making of individualactors (such as voters, politicians, and bureaucrats) in the public sector.

Public choice analysis a. assumes individuals in the public sector seek to serve the public interest rather than their own personal interests. b. is the study of the decision making of individualactors (such as voters, politicians, and bureaucrats) in the public sector. c. suggests that individual voters have a greater incentive to become informed when making choices among political candidates than when making choices about the products they consume. d. finds that the individuals managing government agencies generally have a much stronger incentive to be efficient than do individuals managing private businesses.

c. rent seeking will be less attractive if the nation's legal (or constitutional) structure makes it difficult to use the political process to take the property or income of others.

Public choice analysis indicates a. most income transfers will be directed toward the poor. b. rent-seeking activities will improve the efficiency of resource allocation and promote economic growth. c. rent seeking will be less attractive if the nation's legal (or constitutional) structure makes it difficult to use the political process to take the property or income of others. d. politicians will consistently oppose programs favored by rent seekers if those programs reduce the welfare of society.

c. enact expansionary fiscal policy during a recession than to enact restrictive fiscal policy during an economic expansion.

Public choice analysis indicates that it will be politically more attractive to a. enact restrictive fiscal policy during an economic expansion than to enact expansionary fiscal policy during a recession. b. enact expansionary fiscal policy during an economic expansion than to enact restrictive fiscal policy during a recession. c. enact expansionary fiscal policy during a recession than to enact restrictive fiscal policy during an economic expansion. d. raise taxes than to increase spending.

c. enact expansionary fiscal policy during a recession than to enact restrictive fiscal policy during an economic expansion.

Public choice analysis indicates that it will be politically more attractive to a. enact restrictive fiscal policy during an economic expansion than to enact expansionary fiscal policy during a recession. b. enact expansionary fiscal policy during an economic expansion than to enact restrictive fiscal policy during a recession. c. enact expansionary fiscal policy during a recession than to enact restrictive fiscal policy during an economic expansion. d. raise taxes than to increase spending.

b. differs from the behavior of people in the private sector because public sector decision roles do not allow people to pursue their own self-interests. educated guess (not a)

Public choice theory indicates that the behavior of people in government a. differs from the behavior of people in the private sector because they are motivated by the public interest rather than their own personal self-interest. b. differs from the behavior of people in the private sector because public sector decision roles do not allow people to pursue their own self-interests. c. is the same as people in the private sector only if decisions are made by majority vote. d. is best understood by applying the same principles we use to predict the behavior of people in the private sector.

d. following the guidance of the invisible hand and probably serving society's best interests as well as their own.

Question 17 10 / 10 pts When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were a. seeking to profit from society's needs rather than following the guidance of the invisible hand, which would have led them to seek jobs serving society rather than jobs with higher pay. b. causing oil prices to rise even more by moving to jobs with higher salaries. c. helping themselves but hurting the economy. d. following the guidance of the invisible hand and probably serving society's best interests as well as their own.

b. Countries that fail to adopt institutions and policies supportive of trade, entrepreneurial discovery, and private investment will remain poor in the foreseeable future.

Regarding economic growth and income levels, which of the following is true? a. Poor countries are unable to ignite the growth process unless they receive financial aid from richer countries. b. Countries that fail to adopt institutions and policies supportive of trade, entrepreneurial discovery, and private investment will remain poor in the foreseeable future. c. Countries that lack an abundance of natural resources have been unable to grow and achieve high income levels. d. Countries with a large population relative to their land area are destined to remain poor.

b. $900.

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of a. $100. b. $900. c. $1,000. d. $10,000.

a. increase output when product prices increase.

Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will a. increase output when product prices increase. b. keep production levels constant when product prices decrease. c. keep their product prices constant even if the demand for their good increases. d. keep their product prices constant even if the demand for their good decreases.

b. concentrated benefits and widespread costs

Special-interest legislation is characterized by a. concentrated costs and concentrated benefits b. concentrated benefits and widespread costs c. widespread benefits and widespread costs d. widespread benefits and concentrated costs e. zero costs

b. scarcity and choice.

The basic ingredients in any economic decision are a. needs and wants. b. scarcity and choice. c. surpluses and shortages. d. market prices and the use of efficient production methods.

d. changes in marginal tax rates exert important effects on real output and employment.

Supply-side economics stresses that a. budget deficits will stimulate demand, output, and employment. b. budget deficits will lead to higher interest rates, which will weaken their expansionary impact. c. an increase in government expenditures financed by higher tax rates will cause real income to rise. d. changes in marginal tax rates exert important effects on real output and employment.

d. $44.6 billion of exports and $37.1 billion of imports

Suppose a country had net exports of $7.5 billion and sold $44.6 billion of goods and services abroad. This country had a. $44.6 billion of imports and $52.1 billion of exports. b. $52.1 billion of exports and $44.6 billion of imports. c. $44.6 billion of imports and $37.1 billion of exports. d. $44.6 billion of exports and $37.1 billion of imports

a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease.

Suppose demand decreases and supply decreases. Which of the following will happen? a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. The change in equilibrium price and quantity cannot be determined.

a. seeking to reduce the money supply to decrease inflation.

Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was a. seeking to reduce the money supply to decrease inflation. b. trying to force Congress to decrease taxes. c. expanding the money supply and stimulating employment. d. expanding the money supply, even though the existing inflation suggested a restrictive policy would be more appropriate.

a. $20.00 purchased in 1955.

Suppose the CPI was 95 in 1955, and suppose currently the CPI is 475. According to the CPI, $100 today purchases the same amount of goods and services as a. $20.00 purchased in 1955. b. $33.33 purchased in 1955. c. $47.50 purchased in 1955. d. None of the above is correct.

b. the price level to fall and real GDP to rise.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, we would expect a. the price level to rise and real GDP to fall. b. the price level to fall and real GDP to rise. c. the price level and real GDP both to stay the same. d. All of the above are possible.

a. Unemployment is 8 percent, and labor force participation is 62.5 percent.

Suppose the population (age 16 and over) of Peru is 400 million; 20 million are unemployed, and 230 million hold jobs. What are the rates of unemployment and labor force participation of Peru? a. Unemployment is 8 percent, and labor force participation is 62.5 percent. b. Unemployment is 8.7 percent, and labor force participation is 92 percent. c. Unemployment is 8.7 percent, and labor force participation is 62.5 percent. d. Unemployment is 5 percent, and labor force participation is 57.5 percent.

b. the index of prices would increase to 300. educated guess (not d)

Suppose the velocity of money is 8, the amount of money in circulation is $200 billion, the index of prices is 150, and real GDP is $10 billion. According to the strict quantity theory of money, if the money supply doubled to $400 billion, a. the velocity of money would fall to 4. b. the index of prices would increase to 300. c. real GDP would increase to $20 billion. d. the velocity of money would rise to 16.

b. increases, and the labor-force participation rate is unaffected.

Terrance loses his job and immediately begins looking for another. Other things the same, the unemployment rate a. increases, and the labor-force participation rate decreases. b. increases, and the labor-force participation rate is unaffected. c. is unaffected, and the labor-force participation rate increases. d. decreases, and the labor-force participation rate is unaffected.

a. (70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.

The "rule of 70" is a simple rule a. (70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates. b. (70 multiplied by the growth rate) that approximates the number of years it will take for income to double at various growth rates. c. (70 divided by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP. (70 multiplied by the percentage

a. is a tool the Fed has used effectively over the past several decades to control the money supply. educated guess (not d)

The Fed's use of the interest rate it pays banks on their excess reserves a. is a tool the Fed has used effectively over the past several decades to control the money supply. b. is a tool that can be used to reduce the supply of money, but it cannot be used to expand it. c. is a monetary tool that the Fed introduced in 2008. d. is a tool that could be used to expand the money supply, but it could not be used to reduce it.

a. the prolonged unemployment of the 1930s.

The Keynesian model provided an explanation for a. the prolonged unemployment of the 1930s. b. the double-digit inflation rates of the 1970s. c. the high unemployment rates of the 1970s. d. the high inflation rates of the 1930s.

a. increase as an economy enters a recession.

The actual rate of unemployment will generally a. increase as an economy enters a recession. b. decrease as an economy enters a recession. c. fall below the natural rate of unemployment during a recession. d. do both a and c.

d. the general price level and the aggregate quantity of goods and services demanded.

The aggregate demand curve indicates the relationship between a. the real wage rate and the quality of resources demanded by producers of goods and services. b. the interest rate and the amount of loanable funds demanded by borrowers. c. the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium. d. the general price level and the aggregate quantity of goods and services demanded.

d. real wealth rises, interest rates fall, and net exports rise.

The change in the aggregate quantity of goods and services demanded in the U.S. is based on the logic that as the price level falls, a. real wealth falls, interest rates rise, and net exports fall. b. real wealth falls, interest rates rise, and net exports rise. c. real wealth rises, interest rates fall, and net exports fall. d. real wealth rises, interest rates fall, and net exports rise.

a. real wealth falls, interest rates rise, and net exports fall.

The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level rises, a. real wealth falls, interest rates rise, and net exports fall. b. real wealth falls, interest rates rise, and net exports rise. c. real wealth rises, interest rates fall, and net exports fall. d. real wealth rises, interest rates fall, and net exports rise.

d. tends to raise the unemployment rate.

The current U.S. unemployment insurance program a. tends to significantly lower the unemployment rate. b. tends to modestly lower the unemployment rate. c. has no effect on the unemployment rate. d. tends to raise the unemployment rate.

a. Interest rates remain low.

The debt to GDP ratio in the U.S. is unlikely to cause major problems as long as which of the following scenario holds? a. Interest rates remain low. b. Unemployment remains high. c. GDP growth remains low. d. A large proportion of the population stays in retirement collecting Social Security payments.

a. directly with both the price level and the level of real GDP.

The demand for money varies Correct! a. directly with both the price level and the level of real GDP. b. inversely with both the price level and the level of real GDP. c. inversely with the price level and directly with the level of real GDP. d. directly with the price level and inversely with the level of real GDP. e. inversely with the level of nominal GDP.

d. Positive statements are based on face while normative statements are based on opinion

The difference between positive economic statements and normative economic statements is that a. Positive economics are based on opinion while normative statements are based on fact b. Positive statements are true and normative statements are often false c. Positive statements are often false and normative statements are true d. Positive statements are based on face while normative statements are based on opinion e. Both b and d

d. automatic stabilizers, once adopted, are built into the structure of the economy.

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that a. only discretionary fiscal policy can stimulate the economy. b. only automatic stabilizers can stimulate the economy. c. discretionary fiscal policy, once adopted, is built into the structure of the economy. d. automatic stabilizers, once adopted, are built into the structure of the economy.

d. periods of growth in real output followed by periods of decline.

The distinguishing characteristics of business cycles are a. periods of inflation followed by periods of deflation. b. high rates of economic growth coupled with high rates of unemployment. c. a constant rate of economic growth coupled with ups and downs in the general level of prices. d. periods of growth in real output followed by periods of decline.

b. employed.

The employment/population ratio identifies the proportion of the population age 16 and over that is a. either looking for work or on layoff waiting to be rehired. b. employed. c. in the labor force. d. unemployed.

a. changes in investment, government, or consumption spending can trigger much larger changes in output.

The expenditure multiplier indicates that a. changes in investment, government, or consumption spending can trigger much larger changes in output. b. an increase in saving will cause output to rise by a multiple of the additional saving. c. a market economy will be more stable than classical economists thought. d. the marginal propensity to consume is greater than one.

c. indicate that foreigners have confidence in the monetary policy and economy of the United States. educated guess (not a)

The foreign holdings of U.S. dollars a. are hard to explain since the dollar is not legal tender outside the United States. b. have decreased substantially during the last decade. c. indicate that foreigners have confidence in the monetary policy and economy of the United States. d. are largely held in countries with a lengthy historical record of monetary and price stability.

b. re-enforced corrupt governments and policies that stifle productive activities.

The historical record indicates that foreign aid has a. played a major role in helping formerly poor countries grow rapidly and achieve high income levels. b. re-enforced corrupt governments and policies that stifle productive activities. c. helped poor countries escape counterproductive policies imposed by authoritarian political leaders. d. promoted economic growth, but slowed the movement toward political democracy.

a. economy produces its potential output

The long-run equilibrium price level is the price level the economy is expected to reach when the a. economy produces its potential output b. Fed has stabilized interest rates c. federal budget is balanced d. discount rate equals the prime rate e. inflation rate is zero

a. health care, national defense, Social Security, and other income transfers.

The major categories of federal government spending are a. health care, national defense, Social Security, and other income transfers. b. law enforcement, environmental protection, and national defense. c. public education, garbage collection, and public parks. d. health care, public education, and highways.

d. direct the economy to full employment and direct resources toward economically productive projects.

The most effective fiscal stimulus will a. create jobs, even if the employment is on unproductive projects. b. substantially change the composition of aggregate demand. c. encourage interest groups to lobby more intensely and make larger political contributions. d. direct the economy to full employment and direct resources toward economically productive projects.

b. the benefits that result from specialization, adoption of mass production techniques, and exchange.

The most important source of gain from the division of labor is a. the repeal of the law of comparative advantage. b. the benefits that result from specialization, adoption of mass production techniques, and exchange. c. the increase in the number of jobs since more labor is used to produce goods. d. the reduction in work effort because incentives are adversely affected.

c. the economy is characterized by dynamic change and imperfect information.

The natural rate of unemployment is not zero because a. some workers will always have few skills. b. unemployment will always rise during the recessionary phase of the business cycle. c. the economy is characterized by dynamic change and imperfect information. d. not every member of society is capable of participating in the labor force.

c. substitution of debt for tax financing will leave aggregate demand and real output unchanged.

The new classical model implies that a a. budget surplus will effectively retard inflation emanating from excess demand. b. budget deficit will increase the real interest rate. c. substitution of debt for tax financing will leave aggregate demand and real output unchanged. d. planned budget deficit will be a highly effective tool to combat a recession.

a. before inflation accelerated. educated guess (not b)

The optimal time for the implementation of restrictive fiscal policy would be a. before inflation accelerated. b. after inflation accelerated. c. during a recession. d. after the price level had risen significantly.

a. around 1800, when per capita GDP began to increase rapidly in some Western countries.

The per capita income level of the world grew very slowly prior to a. around 1800, when per capita GDP began to increase rapidly in some Western countries. b. around 400, when the collapse of the Roman empire resulted in a substantial increase in the growth of real GDP. c. around 2000, when mobile phones became commonly available. d. the 14th century, when the Italian Renaissance began.

b. saving.

The portion of after-tax income a consumer does not spend on consumption is called a. investment. b. saving. c. supply. d. temporary income.

a. decreasing real output and increasing unemployment.

The recessionary phase of the business cycle is characterized by a. decreasing real output and increasing unemployment. b. decreasing real output and declining unemployment. c. increasing real output and increasing unemployment. d. increasing real output and declining unemployment.

d. labor services, natural resources, and physical capital.

The resource market involves transactions dealing with a. natural resources and financial services. b. the borrowing and lending of financial capital. c. the buying and selling of final goods and services. d. labor services, natural resources, and physical capital.

b. a rapid increase in the money supply, potentially leading to inflation.

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for a. a sharp contraction in the money supply, which is likely to increase the length and severity of the recession. b. a rapid increase in the money supply, potentially leading to inflation. c. a gradual increase in the money supply, following the trend of the previous decade. d. a reduction in the ability of banks to extend additional loans.

c. cause firms to expand output since the higher product prices will improve profitability.

The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will a. increase aggregate demand as consumers buy more. b. decrease aggregate demand as consumers buy less. c. cause firms to expand output since the higher product prices will improve profitability. d. cause firms to reduce output since the higher product prices will decrease profit margins.

b. the general level of prices and the quantity of goods and services that domestic firms will supply.

The short-run aggregate supply curve shows the relationship between a. the general level of prices and the quantity of goods and services purchased by all consumers in the economy. b. the general level of prices and the quantity of goods and services that domestic firms will supply. c. the interest rate and the quantity of goods and services that domestic firms will supply. d. the money supply and the quantity of goods and services that domestic firms will supply.

d. is variable, not fixed, across time periods.

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie a. determines how much wealth an individual can obtain. b. is a fixed total waiting to be divided up among people. c. depends solely upon the natural resources of a country. d. is variable, not fixed, across time periods.

b. John's income is the only influence that is being allowed to change.

The statement, "John buys more of good X as his income increases, ceteris paribus," means a. the price of this good is being allowed to change. b. John's income is the only influence that is being allowed to change. c. John's purchases of good X are being held constant. d. John's income is being held constant. e. John's income and purchases of this good are being held constant.

b. long-run aggregate supply curve. educated guess (not a)

The supply of resources, level of technology, and the quality of an economy's institutional arrangements provide the constraint that determines the shape of the a. short-run aggregate supply curve. b. long-run aggregate supply curve. c. supply of loanable funds. d. aggregate demand curve.

b. long-run aggregate supply curve.

The supply of resources, level of technology, and the quality of an economy's institutional arrangements provide the constraint that determines the shape of the a. short-run aggregate supply curve. b. long-run aggregate supply curve. c. supply of loanable funds. d. aggregate demand curve.

c. legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers.

The term pork-barrel legislation refers to a. government spending programs financed with user charges. b. the exchange between legislators of their votes on issues. c. legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers. d. the actions of legislators who are willing to trade their political votes for campaign contributions from special interest groups.

b. opportunity cost of production.

The total economic cost of producing a good or service is called the a. social consequence of resources. b. opportunity cost of production. c. comparative value of construction. d. marginal valuation of output.

d. unemployed individuals divided by the number of individuals employed plus the number of unemployed. educated guess (not c)

The unemployment rate is defined as the number of a. unemployed individuals divided by the number of employed individuals. b. employed individuals divided by the number of individuals in the working-age population. c. unemployed individuals divided by the number of individuals in the working-age population. d. unemployed individuals divided by the number of individuals employed plus the number of unemployed.

c. fiscal policy.

The use of government taxation and expenditures to achieve macroeconomic goals is called a. cyclical policy. b. monetary policy. c. fiscal policy. d. industrial policy.

d. is inversely related to the general level of prices.

The value (purchasing power) of each unit of money a. is largely independent of the money supply. b. tends to increase as the money supply expands. c. increases as the general level of prices rise. d. is inversely related to the general level of prices.

a. not added to U.S. GDP because they are produced abroad

U.S. imports are a. not added to U.S. GDP because they are produced abroad b. added to U.S. GDP because they are consumed domestically c. added to U.S. GDP because they represent an increase in inventories d. added to U.S. GDP as government purchases because the government decides what goods may be imported e. not added to U.S. GDP because they are intermediate goods

b. the share of production carried out in the nonmarket sector is different for the two periods. educated guess (not d)

Use of real GDP to measure changes in national output from one period to another can be misleading if a. the price level is different for the two periods. b. the share of production carried out in the nonmarket sector is different for the two periods. c. the bundle of goods produced during the periods is quite similar. d. the size of the export-import sector differs for the two periods.

d. They reduced SRAS, causing real output and employment to decline.

What impact did the soaring oil prices of 2007 and the first half of 2008 have on the economy? a. They increased SRAS, causing real output and employment to increase. b. They reduced SRAS, causing real output and employment to increase. c. They increased SRAS, causing real output and employment to decline. d. They reduced SRAS, causing real output and employment to decline.

b. An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices.

What is meant by the expression, "There is too much money chasing too few goods"? a. People spend too much time chasing after money. b. An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices. c. The value of money will tend to decline when the supply of gold increases. d. People would be better off if the monetary authorities increased the supply of money more rapidly.

a. High rates of inflation are usually associated with wide year-to-year changes in inflation.

Which of the following about inflation is true? a. High rates of inflation are usually associated with wide year-to-year changes in inflation. b. High rates of inflation are usually associated only with very large countries such as the United States. c. High rates of inflation are usually associated only with smaller countries such as Costa Rica. d. High rates of inflation will generally improve the economic efficiency of an economy.

b. Both changes would increase aggregate demand. educated guess (not a)

What would be the effect of a decrease in the real interest rate and an increase in the expected inflation rate? You Answered a. Both changes would decrease aggregate demand. b. Both changes would increase aggregate demand. c. Both changes would increase short-run aggregate supply. d. Both changes would increase long-run aggregate supply.

d. $40 billion.

When an economy is operating well below its full-employment capacity and the marginal propensity to consume is 3/4, a $10 billion increase in investment will cause the equilibrium income to rise by a. $5 billion. b. $10 billion. c. $20 billion. d. $40 billion.

c. provide others with things that they value in exchange for income.

When competition is present and property rights secure, people will be encouraged to a. plunder the resources of others. b. pay the lowest possible wages. c. provide others with things that they value in exchange for income. d. Invest in other countries where markets are less competitive and property rights less secure.

d. structural unemployment.

When individuals are unemployed because they lack the qualifications to fill available jobs, this is called a. frictional unemployment. b. natural unemployment. c. cyclical unemployment. d. structural unemployment.

b. output will temporarily fall short of the economy's long-run potential.

When prices in the goods and services market are below the level anticipated, a. output will temporarily exceed the economy's long-run potential. b. output will temporarily fall short of the economy's long-run potential. c. output will be equal to the economy's long-run potential. d. the actual rate of unemployment will be less than the natural rate of unemployment.

c. retard economic progress.

When regulations interfere with exchange and limit entry into various businesses and occupations, they will a. help a country achieve more rapid economic growth. b. promote more efficient use of investment capital by entrepreneurs. c. retard economic progress. d. increase the profits of business firms.

a. lower nominal interest rates and a decline in the velocity of money.

When the Fed purchases more bonds and, thereby, increases the money supply, the initial effects of the more expansionary monetary policy will often be weakened as a result of a. lower nominal interest rates and a decline in the velocity of money. b. higher nominal interest rates and a decline in the velocity of money. c. higher nominal interest rates and an increase in the velocity of money. d. lower real interest rates and an increase in the velocity of money.

b. has excess reserves, which can be used to extend additional loans.

When the actual reserves held by a bank exceed the legal requirement, the bank a. will have to borrow from the Fed. b. has excess reserves, which can be used to extend additional loans. c. cannot extend additional loans. d. will have to reduce its outstanding loans.

b. consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided.

When the government both provides a service and covers its costs through taxation, a. the government has a strong incentive to supply consumers with desired goods at a low cost. b. consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided. c. the invisible hand will direct decision makers toward the most efficient level of output. d. Consumers have strong incentive to be cost conscious.

c. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy.

Which of the following about inflation is true? a. Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals. b. Unanticipated inflation is a change in the price level that is widely expected. c. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy. d. Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.

a) Inventory investment adds to GDP because it represents goods produced during the current period.

Which of the following about inventory changes and GDP is true? a) Inventory investment adds to GDP because it represents goods produced during the current period. b) Inventory investment is subtracted from GDP because the goods were not sold during the period. c) Inventory investment does not affect GDP because the goods were not sold during the period. d) Inventory investment does not affect GDP because it does not represent goods produced during the period.

b. Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost.

Which of the following appropriately applies the law of comparative advantage? a. Since workers in countries such as the United States utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. b. Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost. c. Since Mexican labor is cheaper than American labor, trade between the countries results in exploitation of American workers. d. Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities.

D. The air we breathe

Which of the following are NOT scarce? A. Time for leisure activities B. Computers C. Compact discs D. The air we breathe

a. High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently.

Which of the following best explains why high marginal tax rates retard output? a. High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently. b. High marginal tax rates will encourage foreign investment. c. High marginal tax rates will reduce budget deficits and lower interest rates. d. High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods.

my guess is a. Teenagers change jobs more frequently than do older individuals. (not d)

Which of the following best explains why the rate of unemployment is highest among individuals aged 16 through 19? a. Teenagers do not have the skills necessary to find jobs. b. Teenagers change jobs more frequently than do older individuals. c. Teenagers have a higher labor force participation rate than other age groups. d. Most teenagers are in school and, for this reason, are not holding jobs.

d. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.

Which of the following best illustrates the use of discretionary countercyclical fiscal policy? a. Congress provides $90 billion in relief aid for hurricane victims. b. Congress appropriates $50 billion to help the needy, and the appropriation is financed by a tax on wealth. c. Income tax receipts are smaller because of a decline in real GDP during a recession. Correct! d. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.

d. M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail)

Which of the following compose the M2 money supply? a. currency only b. currency, demand deposits, other checkable deposits, and traveler's checks c. M1 plus large denomination time deposits and Eurodollar deposits d. M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail)

b. Sellers' costs increase and the price of the good stays the same.

Which of the following events would decrease producer surplus? a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs decrease and the price of the good increases. All of the above are correct.

c. A legal system that provides for secure property rights and even-handed enforcement of contracts.

Which of the following factors would be most likely to encourage capital formation in a less-developed nation? a. High and variable rates of inflation. b. Tariffs and quotas that restrict international trade. c. A legal system that provides for secure property rights and even-handed enforcement of contracts. High marginal tax rates.

D. increased optimism on the part of consumers and businesses educated guess (not c)

Which of the following factors would increase aggregate demand in the goods and services market? A. an decrease in stock prices B. an increase in the real interest rate C. a decrease in real incomes abroad D. increased optimism on the part of consumers and businesses

d. Since changes in discretionary policy are difficult to time correctly, fiscal policy should not be altered in response to each minor disturbance.

Which of the following is a consensus view among economists with regard to fiscal policy? a. Changes in fiscal policy exert a strong influence on real output, just as the basic Keynesian model suggests. b. Expansionary fiscal policy will not help promote recovery from a recession. c. Restrictive fiscal policy is a potent anti-inflationary weapon. d. Since changes in discretionary policy are difficult to time correctly, fiscal policy should not be altered in response to each minor disturbance.

d. Secure property rights and low marginal tax rates.

Which of the following will be most likely to contribute to the growth of a less-developed country? a. Price controls that keep the cost of agricultural products low. b. Rapid population growth. c. Exchange rate controls and export restrictions. d. Secure property rights and low marginal tax rates.

b. It permits individuals to better match their skills and preferences with the requirements of a job.

Which of the following is a positive effect of job search and the unemployment that often accompanies it? a. It keeps wages and income levels low. b. It permits individuals to better match their skills and preferences with the requirements of a job. c. It reduces the wage gap between high skill workers and those with few skills. d. It creates political pressure for an increase in the minimum wage, which will reduce the rate of unemployment in the long run.

d. Growth of nominal GDP during 2010-2012 at a rate similar to that of recent decades. educated guess (not a)

Which of the following is inconsistent with the view that Fed monetary policy was excessively expansionary during 2010-2013? a. Short-term interest rates that were near zero throughout these years. b. A rapid increase in the monetary base throughout these years. c. A tripling of Fed asset holdings from less than $1 trillion in 2008 to approximately $3 trillion in 2012. d. Growth of nominal GDP during 2010-2012 at a rate similar to that of recent decades.

c. Policies and institutions that encourage productive activities.

Which of the following is most important for the achievement of long-term economic growth and a high level of per capita income? a. Abundant natural resources. b. Foreign aid. c. Policies and institutions that encourage productive activities. d. Institutions and policies that control the growth of population.

a. Anything generally accepted as payment for goods or repayment of debt

Which of the following is the best definition of money? a. Anything generally accepted as payment for goods or repayment of debt b. Anything that can be converted to a liquid asset c. A national currency that is backed by gold or other precious metals d. Paper or coin currency that is produced by the Federal Reserve

d. The price of orange juice will fall, and the quantity purchased will fall.

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product? a. The price of orange juice will increase, and the quantity purchased will fall. b. The price of orange juice will fall, and the quantity purchased will increase. c. The price of orange juice will increase, and the quantity purchased will increase. d. The price of orange juice will fall, and the quantity purchased will fall.

a) The growth rate of real GDP will tend to understate the growth rate of total output.

Which of the following is the most likely side effect of an increase in the relative size of the underground economy with the passage of time? a) The growth rate of real GDP will tend to understate the growth rate of total output. b) The growth rate of real GDP will tend to overstate the growth rate of total output. c) The GDP deflator will tend to overstate any increase in inflation. d) The GDP deflator will tend to understate any increase in inflation.

d. All of the above are correct.

Which of the following is true about investment? a. In a competitive capital market, private investors have a strong incentive to evaluate projects carefully and allocate their funds toward those projects expected to yield the highest rates of return. b. In a competitive environment, profitable investment projects will tend to increase the wealth of the nation. c. When investment funds are allocated by governments (rather than capital markets), political clout rather than the expected rate of return will generally determine which projects are undertaken. d. All of the above are correct.

c. There was a substantial increase in the volume of mortgage loans extended with little or no down payment.

Which of the following is true of home mortgage loans since the late 1990s? a. Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. b. Traditional fixed-rate, long-term mortgages grew in popularity. c. There was a substantial increase in the volume of mortgage loans extended with little or no down payment. d. High interest rates made it less attractive to lock in to a fixed-rate, long-term loan.

c. Government expenditures as a share of GDP grew rapidly between 1930 and 1980.

Which of the following is true regarding government expenditures in the United States? a. As a share of GDP, government expenditures were higher in 1950 than 2012. b. Government expenditures were more than 30 percent of GDP in 1930. c. Government expenditures as a share of GDP grew rapidly between 1930 and 1980. d. In 2012, government expenditures at all levels summed to approximately 10 percent of GDP.

a. An increase in the budget deficit relative to GDP

Which of the following most clearly indicates that fiscal policy is becoming more expansionary? a. An increase in the budget deficit relative to GDP b. A reduction in the budget deficit relative to GDP c. An increase in the budget surplus relative to GDP d. An increase in the nominal (dollar) size of the budget deficit

a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

Which of the following occurs when a shortage occurs in the market for a good? a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. b. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. c. Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption. d. Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption.

b. The Federal Reserve lowers the reserve requirement.

Which of the following options would be most likely to cause an increase in short-term real interest rates? a. The Federal Reserve cuts the discount rate. b. The Federal Reserve lowers the reserve requirement. c. The Federal Reserve sells bonds in the open market. d. The federal budget is shifted toward a surplus.

d. A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings.

Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession? a. Rising stock prices in response to the low-interest rate policy. b. The lower cost of borrowing to undertake business investment. c. An increase in the velocity of money. d. A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings.

c. a doubling of the price of bread

Which of the following will cause a decrease in the demand for peanut butter? a. an increase in the supply of peanut butter b. an increase in the price of peanut butter c. a doubling of the price of bread d. a drought in Georgia that destroyed 30 percent of the peanut crop e. an increase in consumer income

b. Monetary instability.

Which of the following will discourage investment? a. Well-defined property rights. b. Monetary instability. c. A low and steady rate of inflation. d. Low tax rates.

b. an increase in unemployment

Which of the following will most likely accompany an unanticipated reduction in aggregate demand? a. an increase in the general price level b. an increase in unemployment c. an increase in real GDP d. an increase in resource prices

c. an improvement in technology that substantially reduces the cost of generating energy

Which of the following will most likely cause an increase in the long-run aggregate supply curve? a. a reduction in the general level of prices b. an increase in the general level of prices c. an improvement in technology that substantially reduces the cost of generating energy d. an increase in taxes that makes it more expensive for Americans to import crude oil

b. an increase in unemployment benefits

Which of the following will most likely increase the natural rate of unemployment? a. a decrease in the minimum wage b. an increase in unemployment benefits c. an increase in the number of people who stop looking for a job d. an increase in the proportion of prime-age workers as a share of the labor force

c. a decrease in output and a lower price level

Which of the following will most likely occur in the short run if long-run equilibrium is disturbed by an unanticipated decrease in aggregate demand? a. a decrease in output and a higher price level b. an increase in output and a higher price level c. a decrease in output and a lower price level d. an increase in output, while prices remain unchanged

d. All of the above.

Which of the following will tend to retard the growth and prosperity of a country? a. Imposition of price controls and regulations that restrain domestic and international trade. b. An expansionary monetary policy that leads to high rates of inflation. c. High marginal tax rates. d. All of the above.

b. Rapid expansion in the monetary base, declining short-term interest rates, and an increase in the growth rate of the M2 money supply

Which of the following would be most indicative of a shift to a more expansionary monetary policy? a. Rapid expansion in the monetary base, higher short-term interest rates, and a decline in the growth rate of the M1 money supply! b. Rapid expansion in the monetary base, declining short-term interest rates, and an increase in the growth rate of the M2 money supply c. A reduction in the monetary base, higher short-term interest rates, and a decline in the growth rate of the M1 money supply d. A reduction in the monetary base, lower short-term interest rates, and a decline in the growth rate of the M2 money supply

b. a technological improvement that lowers the cost of producing laptop computers

Which of the following would increase the supply of laptop computers? a. higher wage rates for the workers that produce laptop computers b. a technological improvement that lowers the cost of producing laptop computers c. an increase in the price of computer chips used to produce laptop computers d. all of the above

b. a sharp increase in the number of out-of-town students attending the local college

Which of the following would lead to an increase in the demand for rental apartments in your area? a. a reduction in the rental price of apartments b. a sharp increase in the number of out-of-town students attending the local college c. an increase in the cost of the materials used to construct apartment units. d. an increase in unemployment and reduction in the income of people in your area

d) An automobile manufacturer lays off 200 workers as the result of a fire in the paint shop.

Which one of the following events will reduce GDP? a) Mrs. Lee hires a housekeeper. b) You buy the ingredients to bake a loaf of bread, but you burn the bread and throw it away. c) You decide to work five more hours per week at your bookkeeper job, even though you need more time to study. d) An automobile manufacturer lays off 200 workers as the result of a fire in the paint shop.

c. higher nominal interest rates

Which one of the following factors would reduce the quantity of money balances that households would want to hold? a. higher prices b. a rise in inflation c. higher nominal interest rates d. an expansion in nominal income (nominal GDP)

b. It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability.

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy? a. Congressional action is necessary if automatic stabilizers are going to be an effective stabilization tool. b. It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. c. Fiscal policy is more potent than the early Keynesian view implied. d. Budget deficits are a highly effective tool with which to combat a severe recession.

d. Budget deficits are a highly effective tool with which to combat a severe recession.

Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy? a. Automatic stabilizers help reduce the fluctuations in aggregate demand and output. b. It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. c. Fiscal policy is much less potent than the early Keynesian view implied. d. Budget deficits are a highly effective tool with which to combat a severe recession.

d. The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand. educated guess (not a)

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012? You Answered a. The low interest rates accompanying the policy failed to increase stock prices. b. Even though the Fed made additional reserves available to the banking system, the policy did not result in lower interest rates. c. The velocity of money increased, partially offsetting the impact of the Fed's low interest rate policy. d. The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand.

c. Spending increases will be driven by political considerations and will often flow into areas where resources are already fully employed.

Why might an expansion in government spending increase the severity of the coordination problem during a recession? a. Increases in government spending will not affect the composition of aggregate demand. b. Congress is unlikely to approve increases in government spending during a recession. Correct! c. Spending increases will be driven by political considerations and will often flow into areas where resources are already fully employed. d. Government spending can be counted on to flow toward high productivity projects.

c. tends to reduce the average quantity of money that people will choose to hold.

Widespread use of credit cards a. will increase the M1 money supply figures. b. will increase the M2 money supply figures but not those for M1. c. tends to reduce the average quantity of money that people will choose to hold. d. tends to increase the average quantity of money that people will choose to hold.

c. Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate.

Within the AD/AS model, how does an economy adjust to an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand? a. Wage rates and resource prices will fall, causing a decrease in aggregate demand and the restoration of equilibrium at a higher price level. b. Long-run aggregate supply will increase, leading to a new equilibrium at a lower price level. c. Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate. d. Lower real interest rates will stimulate demand and restore equilibrium at the initial price level.

c. lower resource prices and declining interest rates will direct the economy back to full employment.

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output, a. the natural rate of unemployment will increase. b. long-run aggregate supply will increase. c. lower resource prices and declining interest rates will direct the economy back to full employment. d. higher resource prices and rising interest rates will direct the economy back to full employment.

b. aggregate demand will increase.

Within the AD/AS model, if consumers and investors become more optimistic about the future direction of the economy, a. aggregate demand will decrease. b. aggregate demand will increase. c. long-run aggregate supply will increase. d. long-run aggregate supply will decrease.

c. When investment increases by $1, income increases by $5. educated guess (not a)

Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true? a. When consumption increases by $5, income increases by $1. b. When consumption increases by $1, saving increases by $5. c. When investment increases by $1, income increases by $5. d. When investment increases by $1, saving increases by $5.

c. will converge toward the economy's long-run capacity.

Within the framework of the AD/AS model, in the long run, output a. will exceed the economy's long-run capacity. b. will be less than the economy's long-run capacity. c. will converge toward the economy's long-run capacity. d. must equal approximately 95 percent of the economy's long-run capacity.

b. equilibrium output will be less than the full-employment rate of output.

Within the framework of the Keynesian model, if spending is abnormally low, a. the economy will be in equilibrium at full employment, but inflation will be high. b. equilibrium output will be less than the full-employment rate of output. c. the equilibrium output rate will exceed the economy's full-employment capacity. d. the actual rate of unemployment will be less than the natural rate of unemployment.

d. has mistakenly inferred causation from observed correlation

Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he a. has committed the fallacy of composition b. is correct only when the United States enjoys economic growth c. is correct only when the economy is in a recession has ignored secondary effects d. has mistakenly inferred causation from observed correlation

a. producers are willing to supply larger amounts of a good as its price increases.

according to the law of supply a. producers are willing to supply larger amounts of a good as its price increases. b. a direct relationship exists between the price of a good and the amount buyers choose to buy. c. an inverse relationship exists between the price of a good and the amount buyers wish to buy. d. an inverse relationship exists between the price of a good and the amount producers supply.

b. decrease the quantity demanded for the good.

an increase in the price of a good would a. decrease the demand for the good. b. decrease the quantity demanded for the good. c. increase the demand for the good. d. decrease the quantity supplied of the good.

C= consumption, I= investment, G= government purchases, X= net exports

equilibrium is present when C+I+G+X=Y. What do these letters represent?

b. there is excess supply of the good.

the price of a good will tend to fall when a. there is excess demand for the good. b. there is excess supply of the good. c. demand for the good increases. d. the supply of the good decreases.

b. a technological improvement that lowers the cost of producing laptop computers

which of the following would increase the supply of laptop computers? a. higher wage rates for the workers that produce laptop computers b. a technological improvement that lowers the cost of producing laptop computers c. an increase in the price of computer chips used to produce laptop computers d. all of the above

a. measures the value that a buyer places on a good.

willingness to pay a. measures the value that a buyer places on a good. b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.