macro2

The aggregate demand curve illustrates the a. positive relationship between the price level and the quantity demanded of real gross domestic product (GDP). b. positive relationship between the price level and the quantity demanded of nominal gross domestic product (GDP). c. inverse relationship between the price level and the quantity demanded of real gross domestic product (GDP). d. inverse relationship between the price level and the quantity demanded of nominal gross domestic product (GDP). e. positive relationship between the level of spending and the level of real gross domestic product (GDP).

c

The demand and supply of loanable funds increase simultaneously. This would cause the equilibrium a. quantity of loanable funds to decrease and the equilibrium interest rate to increase. b. quantity of loanable funds to increase and the equilibrium interest rate to decrease. c. quantity of loanable funds to increase, but the effect on the equilibrium interest rate would be uncertain. d. interest rate to increase, but the new equilibrium quantity would be uncertain. e. interest rate to decrease, but the new equilibrium quantity would be uncertain.

c

The demand for loanable funds increases while the supply of loanable funds remains constant. This would cause a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase. b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease. c. both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase. d. the equilibrium interest rate to decrease, but the equilibrium quantity of loanable funds would remain unchanged. e. the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would remain unchanged.

c

The interest rate of a bond is equal to the a. difference between the face value and the initial price all divided by the face value. b. difference between the face value and the initial price. c. difference between the face value and the initial price all divided by the initial price. d. sum of the face value and the initial price all divided by the face value. e. sum of the face value and the initial price all divided by the initial price.

c

Which of the following would explain why a firm would want to sell bonds instead of stocks? a. The owners do not want the burden of bills to be paid. b. The owners are trying to finance production. c. The owners want to retain control of the business. d. There are more fees associated with issuing stocks. e. Bonds are easier to issue than stocks are.

c

Which of the following would shift aggregate demand to the right? a. College graduates are having a difficult time finding jobs. b. There is a decline in consumer confidence. c. Stock market values increase by 20 percent. d. A fall in the price level increases the value of real wealth. e. The value of the dollar increases.

c

Why do corporations find high bond ratings desirable? a. Higher interest rates on the bonds mean higher corporate profits. b. Higher ratings improve a company's image with consumers. c. Higher ratings mean lowered corporate operating costs. d. Firms can sell more bonds when they are highly rated. e. Bonds with higher ratings are less likely to have to be repaid.

c

Why does the demand curve for loanable funds slope downward from left to right? a. Interest rates on loanable funds typically decline over time. b. The interest rate on a loan is directly proportional to demand. c. The higher a loan's interest rate, the fewer firms want the loan. d. Demand for loanable funds decreases more often than it increases. e. The greater the demand for loanable funds, the more the curve shifts.

c

Why would an increase in capital resources lead to an increase in worker productivity? a. More capital means that fewer workers are needed, increasing output. b. More capital leads to a decrease in wages, leading employees to work harder. c. More capital means that workers have better tools and equipment and can produce more. d. More capital means that the owners of a company reap all of the benefits of labor. e. More capital causes decreasing returns to scale.

c

A decrease in aggregate demand is harmful in the short run because ________ but not in the long run because ________. a. real wealth rises; real wealth falls b. wages increase; wages decrease c. the price level rises; output falls d. unemployment rises; the price level falls e. the price level falls; the unemployment rate rises

d

Assuming the figure represents the market for loanable funds, and that point C represents 40 and point D represents 80, then it would be true that a. both points represent interest rates and there is a surplus of loanable funds at an 80 percent interest rate. b. both points represent interest rates and there is a shortage of loanable funds at an 80 percent interest rate. c. both points represent the quantity of loanable funds and there would be a surplus of loanable funds of 40 units. d. both points represent the quantity of loanable funds and at interest rate A there would be a shortage of loanable funds of 40 units. e. the quantity of loanable funds supplied exceeds the quantity demanded at interest rate B, if B represents an interest rate.

d

Assuming the figure represents the market for loanable funds, it would be true that a. the vertical axis represents the amount of savings, and the horizontal axis represents the amount of borrowing. b. the vertical axis represents the interest rate, and the distance between points C and D represents the surplus of loanable funds at interest rate A. c. the horizontal axis represents the interest rate, and the distance between points C and D represents the shortage of loanable funds. d. the vertical axis represents the interest rate, and the distance between points C and D represents the shortage of loanable funds at interest rate A. e. line 1 represents the interest rate, and line 2 represents the quantity of savings.

d

Direct finance occurs when a. savers go directly to borrowers for funds. b. borrowers deposit funds into banks, which then loan these funds to savers. c. savers deposit funds into banks, which then loan these funds to borrowers. d. borrowers go directly to savers for funds. e. banks get involved with financing.

d

If interest rates rise but the quantity of loanable funds demanded and supplies remains constant, this implies that a. both the demand and the supply of loanable funds increased. b. both the demand and the supply of loanable funds decreased. c. the demand and the supply of loanable funds both remained the same. d. the demand for loanable funds decreased while the supply increased. e. the demand for loanable funds increased while the supply decreased..

d

If short-run equilibrium output is above full-employment output, then in the long run input prices will a. decrease and output will increase. b. increase and output will be unaffected. c. increase and short-run aggregate supply will increase. d. increase and output will fall. e. decrease and output will fall.

d

In the long run, the output of an economy a. does not grow. b. grows at a positive rate. c. depends on aggregate demand. d. is equal to full-employment output. e. depends on the price level.

d

Increases in productivity will a. cause the price level to rise. b. impact short-run aggregate supply but not long-run aggregate supply. c. impact aggregate demand but not aggregate supply. d. increase long-run aggregate supply. e. increase the price level and aggregate supply.

d

Is having abundant resources an absolute guarantee of economic growth and prosperity? a. Yes, as long as a country has a large number of resources, it will prosper. b. No, countries also need an aggressive military. c. Yes, there are no prosperous countries without a large amount of resources. d. No, other factors like institutions and technological advances are relevant too. e. No, many countries thrive under collective ownership of property.

d

Rating agencies assign their ratings of a firm's bonds based on the a. market value of the firm. b. value of the firm's capital assets. c. rate of interest paid by the bond. d. likelihood of default on the bond. e. total number of the firm's bonds in circulation.

d

Someone considering a bond purchase knows two things for certain ahead of time: the ________ and the ________. a. rate of interest; purchase price b. default risk; rate of interest c. value at maturity; default risk d. maturity date; value at maturity e. purchase price; maturity date

d

The economy is in long-run equilibrium when a. aggregate demand intersects short-run aggregate supply. b. short-run aggregate supply intersects long-run aggregate supply. c. aggregate demand intersects long-run aggregate supply. d. aggregate demand intersects both long-run and short-run aggregate supply. e. the inflation rate is equal to zero.

d

The interest rate is a. the price of labor. b. the price of land. c. both the price of capital and the price of labor. d. the price of loanable funds. e. the marginal rate of investment supply.

d

The nominal interest rate is a. the rate of interest charged to most large commercial borrowers. b. equal to the real interest rate minus the inflation rate. c. the rate charged on loans for automobiles and other personal loans but not the rate charged on home loans. d. the interest rate that is not corrected for inflation. e. the interest rate that is corrected for inflation.

d

The percent change in nominal gross domestic product (GDP) minus the percent change in prices and the rate of population growth equals a. real per capita GDP. b. the percent change in real GDP. c. the percent change in per capita GDP. d. the percent change in per capita real GDP. e. real GDP.

d

The two different paths through the loanable funds market are ________ finance and ________ finance. a. indirect; security b. internal; external c. saver; borrower d. indirect; direct e. bond; stock

d

When a change in the price level leads to a change in saving, this is known as the ________ effect. a. wealth b. international trade c. savings d. interest rate e. output

d

Which of the following are the three major categories of resources? a. physical capital, technology, institutions b. land, labor, technology c. institutions, human capital, land d. natural resources, physical capital, human capital e. labor, physical capital, technology

d

Which of the following factors is positively correlated with economic growth? a. collectively owned resources b. high barriers to international trade c. restrictions on immigration d. political stability and the rule of law e. high rates of inflation

d

Which of the following would shift aggregate demand to the left? a. A study predicts that the recent drought will increase food prices this winter. b. There is a rise in the median price of houses. c. A rise in the price level reduces saving and increases interest rates. d. The value of the dollar increases. e. The European Union emerges from recession.

d

Who determines when the loan associated with a bond becomes due? a. the bondholder, by declaring a desire to collect on the loan b. anyone who sells or resells the bond, by assigning a maturity date at the time of sale c. anyone who buys the bond, by assigning a maturity date at the time of purchase d. the bond issuer, by assigning a maturity date when the bond is issued e. the bond issuer, by declaring a desire to repay the loan

d

Who is most easily able to borrow money via direct finance? a. private individuals b. financial intermediaries c. government agencies d. large established firms e. nonprofit corporations

d

You are thinking about buying a new car and will borrow $20,000 for this purchase at a 5 percent fixed rate for exactly one year. The lender (correctly) assumes that inflation will be 2 percent this year. Based on the above information and assuming you adhere to the terms of the loan, you will pay back the lender exactly ________, which will represent ________ of purchasing power. a. $20,000; $19,000 b. $21,000; $21,000 c. $21,000; $21,400 d. $21,000; $20,600 e. $19,600; $20,000

d

You deposit $1,000 in the bank and leave it for five years at 3 percent annual interest, making no additional transactions on this account. At the end of the five years, you withdraw the principal and any accumulated interest; the amount you would withdraw would be a. $1,000. b. $1,030. c. $1,150. d. more than $1,150 but less than $1,500. e. more than $1,500.

d

A rightward shift of the long-run aggregate supply curve means there has been a. a decrease in the cyclical unemployment rate. b. an increase in the cyclical unemployment rate. c. an increase in the price level. d. a decrease in the price level. e. economic growth.

e

Aggregate demand is determined by adding up the spending of a. domestic consumers who buy goods and services produced in the United States. b. domestic consumers and firms that buy goods and services produced in the United States. c. domestic and foreign consumers who buy goods and services produced in the United States. d. domestic and foreign consumers and firms that buy goods and services produced in the United States. e. consumers, firms, the government, and foreigners that buy goods and services produced in the United States.

e

An increase in short-run aggregate supply could be the result of a(n) a. increase in the general price level. b. negative supply shock. c. increase in the price of oil. d. increase in consumption spending. e. reduction in expected future prices.

e

An increase in the supply of loanable funds means a. borrowers want to borrow more at every interest rate. b. savers want to borrow more at every interest rate. c. borrowers want to borrow more at a specific interest rate. d. savers want to save more at a specific interest rate. e. savers want to save more at every interest rate.

e

Assuming the figure represents the market for loanable funds a. line 1 represents savings and point A would be a quantity supplied of loanable funds. b. line 1 represents investment demand and point C represents a quantity of loanable funds. c. the vertical axis represents investment demand because investment demand is completely inelastic. d. the horizontal axis represents the quantity of loanable funds and interest rate B represents a higher-than-equilibrium interest rate. e. line 1 represents savings and point C represents a quantity supplied of loanable funds.

e

Bonds contain three important pieces of information. These three pieces are the a. date of issue, the date of repayment, and the interest rate. b. name of the borrower, the name of the issuer, and the date of issue. c. maturity date, the face value of the bond, and the issuing bank. d. issuing bank, the interest rate, and the date of issue. e. name of the borrower, the repayment date, and the amount due at repayment.

e

If the U.S. government wants to increase total spending, what is the alternative to borrowing money by selling bonds? a. bringing in money by selling stocks b. selling off government assets, such as land c. shrinking the money supply d. printing money e. raising taxes

e

If you attempted to determine if the standard of living of a country has increased by looking only at changes in its nominal gross domestic product (GDP), what would you be missing? a. the fact that nominal GDP includes all economic activity, including sales of used goods and illegal goods b. the fact that nominal GDP only considers changes in the price level but ignores changes in population c. the fact that an increase in nominal GDP normally means that standards of living are falling, not rising d. the fact that, in the long run, nominal GDP is the best measure of overall economic growth e. the fact that an increase in nominal GDP does not necessarily mean that standards of living are rising, due to changes in prices and the population

e

If you earn a subsistence-level income, much of your time is spent acquiring a. luxury items, such as expensive cars and a nice house. b. tax cuts, which will raise your take-home pay. c. education and training, to better improve your earnings. d. entertainment and consumer electronics. e. basic necessities such as food, clothing, and shelter.

e

Shifts in the aggregate demand curve are caused by a. the wealth effect. b. the interest rate effect. c. money illusion. d. changes in labor productivity. e. changes in spending.

e

The aggregate demand curve slopes downward because a. as price rises, consumers substitute cheaper goods for more expensive goods. b. all demand curves slope downward. c. a higher price level increases purchasing power. d. a higher price level increases exports. e. a higher price level reduces wealth.

e

The demand for loanable funds is a. savings, because households borrow more than firms. b. horizontal, because firms are infinitely sensitive to interest rates. c. vertical, because it is nonresponsive to interest rates. d. upward sloping, because at higher interest rates the opportunity cost of holding money increases. e. investment, because firms are (on the aggregate) net borrowers.

e

The interest rate is a. a cost to both savers and borrowers. b. only a cost to savers. c. only a return to borrowers. d. both a cost to savers and a return to borrowers. e. both a return to savers and a cost to borrowers.

e

The long-run output of an economy depends on a. the level of spending. b. the level of unemployment. c. the level of inflation. d. the level of aggregate demand. e. resources, technology, and institutions.

e

The real interest rate a. equals the nominal rate minus the prime rate. b. increases as inflation increases, ceteris paribus. c. is what you really pay if you borrow versus what you think you are paying. d. equals the nominal rate plus the rate of inflation. e. equals the nominal rate minus the rate of inflation.

e

The securitization of home mortgages a. neither harms nor benefits most home buyers. b. harms most home buyers, by raising the sales prices of homes. c. benefits most home buyers, by lowering the sales prices of homes. d. harms most home buyers, by raising the cost of borrowing. e. benefits most home buyers, by lowering the cost of borrowing.

e

U.S. Treasury securities are generally considered a. riskier than any other bond. b. of average risk in relation to other bonds. c. a riskier investment than stocks. d. to have a high default risk. e. less risky than any other bond.

e

What is the difference between a bond's face value and its par value? a. The face value is the initial price; the par value is the value at maturity. b. The par value is the initial price; the face value is the value at maturity. c. The face value is the par value plus the interest on the loan. d. The par value is the face value plus the interest on the loan. e. There is no difference.

e

What is the market value of a company? a. the total dollar value of all capital assets b. the total expected future revenue c. the total value of all bonds issued, minus the risk of default d. the total dollar value of all cash on hand e. the total number of stock shares multiplied by the price per share

e

Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds (both borrowed and lent) to fall? a. A baby boom begins, and investor confidence falls. b. A baby boom begins, and investor confidence rises. c. People have lower time preferences, and governments run larger deficits. d. People have lower time preferences, and capital is more productive. e. A baby boom begins, and people have higher time preferences.

e

As income and wealth rise, we would expect a. savings to increase as people save some of the extra wealth or income they have. b. savings to fall, since people would spend the extra income or wealth. c. interest rates to rise. d. foreigners with more wealth to move their assets out of the United States to foreign markets. e. people to have a negative rate of time preference.

a

Assuming the figure represents the market for loanable funds, it would be true that a. line 1 represents savings (supply), and line 2 represents investment (demand). b. the vertical axis represents the interest rate, and the distance between points C and D represents the surplus of loanable funds at interest rate A. c. line 1 represents investment demand, and line 2 represents savings. d. the vertical axis represents the quantity of funds lent and borrowed, whereas the distance between points C and D represents the shortage of loanable funds at interest rate A. e. line 1 represents the interest rate, and line 2 represents the quantity of savings.

a

Business-cycle theory focuses on time horizons of less than a. five years. b. ten years. c. two years. d. one year. e. one month.

a

Change in per capita real gross domestic product (GDP) is the best measure of economic growth because it a. adjusts changes in nominal GDP for changes in the price level and population growth. b. ignores changes in the price level used to compute nominal GDP. c. includes government spending, whereas nominal GDP does not. d. includes all economic activity, including sales of illegal goods and services, which nominal GDP ignores. e. does not consider changes in the population, which are not relevant to GDP anyway.

a

Consider the wealth effect, interest rate effect, and international trade effect. Of these, the ________ effect is the most significant and the ________ effect is the least significant. a. wealth; international trade b. wealth; interest rate c. interest rate; wealth d. interest rate; international trade e. international trade; wealth

a

Economic growth equals the percent change in nominal gross domestic product (GDP) minus the a. percent change in prices and the rate of population growth. b. percent change in prices. c. rate of population growth. d. percent change in prices and the federal budget deficit. e. rate of population growth and the percent change in investment.

a

If an economy experiences economic growth, does that mean that everyone in that economy will be better off? a. No, it means that the average person is better off. b. Yes, that is the definition of economic growth. c. Yes, but only if there is little immigration during that time period. d. No, economic growth is not correlated with standards of living. e. Yes, but only if nominal gross domestic product (GDP) increases.

a

If the current short-run equilibrium level of output is greater than full-employment output, we can then expect that in the long run the a. price level will rise and short-run aggregate supply will fall. b. price level will rise and aggregate demand will fall. c. price level will fall and short-run aggregate supply will rise. d. price level will fall and aggregate demand will rise. e. long-run aggregate supply will increase.

a

If the current short-run equilibrium level of output is less than full-employment output, we can then expect that in the long run a. the price level will fall. b. the price level will rise. c. aggregate demand will decrease. d. aggregate demand will increase. e. long-run aggregate supply will decrease.

a

If you deposit money in the bank, in essence, you are a. a supplier of funds, since the bank simply is an intermediary between those who want to borrow loanable funds and those who are willing to lend them (depositors). b. a borrower, since all bank funds are borrowed from the federal government. c. a supplier of funds, since the bank loans money to the government for daily operations. d. neither a borrower nor supplier of funds in this case, since you have neither lent nor borrowed money. e. not a supplier of funds, since mutual funds are the source of lending to firms.

a

Shifts in the long-run aggregate supply curve are caused by a. changes in labor productivity. b. the wealth effect. c. supply shocks. d. changes in spending. e. the interest rate effect.

a

Stocks are a. ownership shares in a firm. b. securities that represent a debt to be paid. c. markets in which securities are bought and sold. d. contracts that represent a guaranteed payment. e. not available for individual investors.

a

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will ________ and output will ________. a. increase; increase b. increase; decrease c. decrease; decrease d. remain unchanged; remain unchanged e. decrease; increase

a

The aggregate demand curve is best represented by which of the following equations? a. AD = C + I + G + NX b. AD = C + I + G - NX c. AD = C + I + G d. AD = C + I e. AD = C + I - G - NX

a

The bonds sold by the U.S. government to pay for the national debt are called a. Treasury securities. b. mortgage-backed securities. c. securitizations. d. debt securities. e. tradable securities.

a

The economy is in short-run equilibrium when a. aggregate demand intersects short-run aggregate supply. b. short-run aggregate supply intersects long-run aggregate supply. c. aggregate demand intersects long-run aggregate supply. d. aggregate demand intersects both long-run and short-run aggregate supply. e. the economy is at full-employment output.

a

The long-run aggregate supply curve is a. vertical at the level of full-employment output. b. horizontal at the going-price level. c. illustrating a positive relationship between price and output. d. illustrating a negative relationship between price and output. e. the same as the short-run aggregate supply curve.

a

The long-run aggregate supply curve is a. vertical because full-employment output is independent of the price level. b. upward sloping because the economy grows over time. c. horizontal because full-employment output is independent of the price level. d. upward sloping because as the price level rises, firms will increase output. e. downward sloping because rising prices reduce real wealth and spending.

a

The purpose for which firms seek funding in the loanable funds market is to a. pay for resources for production. b. pay the tax obligations on their profits. c. be able to begin issuing bonds. d. establish themselves as financial intermediaries. e. eliminate their reliance on indirect financing.

a

The risk that the borrower will not pay the face value of a bond on the maturity date is called the ________ risk. a. default b. maturity c. timing d. full-pay e. par value

a

The total number of a company's issued shares of a stock, multiplied by the price per share, gives the company's a. market value. b. rating. c. stock index. d. yield. e. par value.

a

The wealth effect, interest rate effect, and international trade effect all explain why the a. aggregate demand (AD) curve has a negative slope. b. aggregate demand (AD) curve has a positive slope. c. aggregate supply (AS) curve has a positive slope. d. aggregate supply (AS) curve has a negative slope. e. price level and real gross domestic product (GDP) are unrelated.

a

What would you expect to happen to the supply and demand model for Treasury securities if a new law makes it easier for foreign investment in the United States? a. The demand curve shifts to the right, causing the price of treasury securities to increase. b. The demand and supply curves shift to the right, causing the price of Treasury securities to increase. c. The demand and supply curves shift to the left, causing the price of treasury securities to decrease. d. The demand curve shifts to the right, causing the price of Treasury securities to decrease. e. The supply curve shifts to the left, causing the price of Treasury securities to increase.

a

When the price level rises, ________ declines from the wealth effect, ________ declines from the interest rate effect, and ________ decline(s) from the international trade effect. a. consumption; investment; net exports b. consumption; consumption; consumption c. investment; investment; net exports d. investment; consumption; net exports e. investment; investment; investment

a

Which description implies a drop in interest rates? a. either a leftward shift of the demand curve for loanable funds, or a rightward shift of the supply curve b. either a leftward shift of the supply curve for loanable funds, or a rightward shift of the demand curve c. a rightward shift of both the supply and the demand curves for loanable funds d. a leftward shift of both the supply and the demand curves for loanable funds e. simultaneous downward movement along fixed demand and supply curves for loanable funds

a

Which of the following do stocks and bonds have in common? a. Both are means for the issuing firm to raise money for operations. b. Both come with part ownership in the issuing firm. c. Both have a fixed rate of return. d. Both impose a debt obligation on the issuing firm. e. Both have a fixed maturity date.

a

Which of the following is an example of an institution that promotes economic growth? a. private property rights b. bartering as a means of trade c. high barriers to international trade d. constant war and conflict e. collective property ownership

a

Which of the following is true? a. Long-run aggregate supply is independent of the price level. b. Short-run aggregate supply is independent of the price level. c. Long-run aggregate supply is positively related to the price level. d. Short-run aggregate supply is inversely related to the price level. e. Long-run aggregate supply is inversely related to the price level.

a

Which of the following would explain why a firm would want to sell stocks instead of bonds? a. The owners are worried about the burden of debt. b. The owners don't want to give up ownership of the business. c. The owners aren't trying to finance production. d. Stocks are easier to issue than bonds are. e. There are more fees associated with issuing bonds.

a

Which of the following statements about bonds is true? a. Bond interest rates fall with increased default risk. b. Bond interest rates and default risk are not related. c. Bond prices rise with increased default risk. d. Bond prices rise with increased interest rates. e. Bond interest rates rise with increased default risk.

e

Which of the following would cause an increase in employment in the short run? a. The minimum wage increases. b. Exports decrease. c. There is a negative supply shock. d. There is an increase in the expected price level. e. There is an increase in government spending.

e

Which of the following would cause an increase in long-run aggregate supply? a. The price level increases. b. The price level decreases. c. Firms and workers expect the price level to fall. d. Firms and workers expect the price level to rise. e. The stock of capital increases.

e

A bond is an instrument that allows the bearer to earn interest. The bearer would be best described as a. a demander of loanable funds. b. a supplier of loanable funds. c. a financial intermediary. d. one who borrows. e. both a financial intermediary and a borrower.

b

According to the interest rate effect, an increase in the price level leads to ________ in the interest rate, and therefore to ________ in the quantity of aggregate demand. a. no change; no change b. a rise; a fall c. a rise; a rise d. a fall; a fall e. a fall; a rise

b

Aggregate demand is about ________ and aggregate supply is about ________. a. income; spending b. spending; production c. production; spending d. production; income e. saving; profit

b

Aggregate supply describes a relationship between a. spending and income. b. output and prices. c. costs and revenue. d. spending and output. e. spending and prices.

b

An increase in expected future prices causes a. an increase in short-run aggregate supply. b. a decrease in short-run aggregate supply. c. a supply shock. d. an upward movement along the aggregate supply curve. e.menu costs.

b

An increase in short-run aggregate supply immediately leads to a(n) a. increase in real wealth and a shift of the aggregate demand curve. b. increase in real wealth and a movement along the aggregate demand curve. c. shift of the aggregate demand curve caused by menu costs. d. shift of the aggregate demand curve caused by money illusion. e. increase in money illusion and a movement along the aggregate demand curve.

b

Assume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? a. This means the nominal rate of interest is 7 percent and the real rate is 5 percent. b. This means the real rate of interest is 2 percent. c. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. d. This means the nominal rate of interest is 35 percent. e. If the rate of inflation falls, your real rate of interest from this asset would also fall.

b

Assuming inflation is positive, the real interest rate a. must always be larger than the nominal interest rate. b. must always be smaller than the nominal interest rate. c. could be larger or smaller than the nominal interest rate, depending on the rate of inflation. d. would normally be larger than the nominal interest rate. e. increases exactly as fast as inflation.

b

Competitive markets contribute significantly to economic growth because a. they encourage firms to exploit consumers via high prices. b. people who want to participate don't face barriers to entry. c. they employ high levels of government regulations. d. they prevent foreign firms (with better ideas) from entering markets. e. they create an incentive for firms to differentiate their products.

b

Every dollar borrowed a. represents a dollar leaving the circular flow. b. requires a dollar to be saved. c. represents a piece of capital. d. requires the supply of loanable funds to increase. e. causes inflation.

b

Gross domestic product requires a. inflation equal to the nominal rate of interest, which means lending equals borrowing. b. investment, which requires borrowing, which requires a functioning loanable funds market. c. borrowing, which requires the real rate of interest to be equal to inflation, which requires a functioning loanable funds market. d. borrowing, which requires sufficiently high interest rates to prevent free riders. e. investment, which requires borrowing, which requires sufficiently low interest rates to prevent free riders.

b

If people expect higher incomes in the future, then spending today ________ and aggregate demand ________. a. increases; is unaffected b. increases; increases c. increases; decreases d. decreases; decreases e. is unaffected; is unaffected

b

Resources are a. the output that firms produce. b. inputs used to produce goods and services. c. the technology that firms use to make things. d. the institutions that encourage efficiency. e. the cost of producing goods and services.

b

Resources are also known as a. factors of productivity. b. factors of production. c. elements of productivity. d. factors of output. e. elements of growth.

b

Savings represents a. the demand for loanable funds. b. the supply of loanable funds. c. the minimum interest rate people are willing to accept (i.e., the "reservation" interest rate). d. only funds supplied by foreigners, because Americans don't save. e. the willingness of firms to borrow.

b

The buyers (or borrowers) in financial markets are a. financial intermediaries. b. firms and governments in search of funds to undertake their daily operations. c. savers looking for opportunities to earn a return on their savings. d. not concerned with the interest rate in the market. e. located on the supply side of the loanable funds market.

b

The inputs used to produce goods and services are also known as a. costs. b. resources. c. output. d. prices. e. institutions.

b

The notion of compound interest means that a. if you leave a lump sum (some dollar amount) in the bank for some period, it will only accumulate interest on the principal (the original amount you deposited). b. if you leave a lump sum (some dollar amount) in the bank for some period, it will accumulate interest both on the principal and on any accumulated interest. c. any amount you borrow will accumulate more and more interest, no matter how much you pay back. d. the demand for loanable funds is upward sloping. e. your interest will grow, but never at a rate higher than 13 percent.

b

The notion of the loanable funds market is the method by which a. consumers get payday loans and auto-title loans. b. savers (typically households and individuals) supply funds to borrowers (typically firms). c. savers (typically firms) supply funds to borrowers (typically the government). d. borrowers are exploited by loan sharks. e. the government lends money to big corporations.

b

The slope of the short-run aggregate supply curve can be explained by a. the fact that all prices are sticky in the short run. b. sticky input prices and flexible output prices. c. flexible input prices and sticky output prices. d. the fact that all prices are flexible in the short run. e. the fact that all prices except wages are flexible in the short run.

b

The two factors that must be subtracted from the percent change in nominal gross domestic product (GDP) to yield the percent change in per capita real GDP are the a. percent change in prices and the rate of investment. b. percent change in prices and the rate of population growth. c. rate of investment and the rate of savings. d. rate of population growth and the rate of savings. e. rate of investment and the rate of population growth.

b

Unemployment rises and real gross domestic product (GDP) growth slows during the ________ business cycle. a. expansion phase of a b. recession phase of a c. entire d. recovery phase of a e. short-run phase of a

b

We could best describe the a. nominal rate of interest as the inflation-adjusted rate of interest. b. real rate of interest as the inflation-adjusted rate of interest. c. rate of inflation as the nominal interest rate. d. loanable funds market as the market where only governments make loans. e. supply of loanable funds as upward sloping, with the slope equaling the rate of inflation.

b

What is the easiest way for a private individual to participate in the loanable funds market as a lender? a. register as a banker b. open a savings or checking account c. issue a stock d. issue a bond e. register as a financial intermediary

b

What is the reason for having the Federal Reserve administer U.S. monetary policy? a. The Federal Reserve is part of the government and carries out monetary policy dictated by the president. b. The Federal Reserve is designed to reduce the incentive for politically motivated and unpredictable monetary policy. c. The Federal Reserve bases the monetary policy on a poll from top business leaders, which ensures that economic growth is prioritized. d. The Federal Reserve is part of the government and carries out the monetary policy dictated by Congress. e. The Federal Reserve is an NGO that bases monetary policy on international trade levels and input from global leaders.

b

What positive-sounding term do bond salesmen use for noninvestment-grade bonds? a. prime bonds b. high-yield securities c. select bonds d. select class securities e. AAA bonds

b

When saving declines, the quantity of investment will ________, and therefore aggregate demand will ________. a. increase; increase b. decrease; decrease c. decrease; increase d. increase; decrease e. remain unchanged; decrease

b

Which aspect of a bond is fixed over the entire lifetime of the bond? a. the dollar value at time of issuance b. the dollar value at maturity c. the dollar value at time of sale d. the dollar amount of interest paid e. the rate of interest paid

b

Which of the following statements is true about bonds? a. Bonds are ownership shares in a firm. b. The dollar price and interest rate of a bond have an inverse relationship. c. A bond's dollar price is calculated as growth rate. d. Bonds can never default. e. The dollar price and interest rate of a bond have a positive relationship.

b

Which of the following would cause an upward movement along the aggregate demand curve? a. There is an increase in expected income. b. An increase in the price level increases the value of real wealth. c. An increase in housing prices increases the value of real wealth. d. The value of the dollar increases. e. There is an increase in the expected price level.

b

A bond is a. the creation of a new security by combining otherwise separate loan agreements. b. an ownership of a firm. c. a security that represents a debt to be paid. d. a market in which securities are traded after their first sale. e. a private firm that accepts deposits and extends loans.

c

An increase in ________ would lead to an increase in long-run economic growth. a. consumer spending and borrowing b. government taxes and fees c. resources and technology d. imports and exports e. prices and interest rates

c

Assuming the figure represents the market for loanable funds, and that point C represents $40 million and point D represents $70 million, then it would be true that a. at interest rate A, the market is in equilibrium. b. at interest rate A, there is a surplus of $30 million of loanable funds. c. at interest rate A, there is a shortage of $30 million of loanable funds. d. because there is a disequilibrium at interest rate A, interest rates must fall. e. the interest rate represented by A must be greater than that represented by B.

c

Economic growth is defined as the percent change of a. gross domestic product (GDP). b. real gross domestic product (GDP). c. real per capita gross domestic product (GDP). d. per capita gross domestic product (GDP). e. population.

c

Equilibrium in the loanable funds market means the a. interest rate at which savings equals consumption. b. interest rate at which investment equals consumption. c. interest rate at which investment equals savings. d. dollar price at which investment equals savings. e. dollar price at which savings equals consumption.

c

If interest rates rise, a. foreign entities that are borrowers of funds will borrow less. b. governments that are savers of funds will save less. c. households that are savers of funds will save more. d. businesses that are savers of funds will borrow less. e. it will reduce consumption smoothing.

c

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will ________, output will ________, and employment will ________ in the long run. a. increase; remain unchanged; increase b. remain unchanged; increase; increase c. decrease; increase; increase d. decrease; decrease; increase e. increase; increase; increase

c

If your income increases at a rate of 2 percent per year, how long will it take to double your income? a. 10 years b. 25 years c. 35 years d. 50 years e. 75 years

c

An increase in investment spending can be expected to ________ interest rates and cause ________ the aggregate demand curve. a. increase; a rightward shift of b. increase; an upward movement along c. decrease; a downward movement along d. decrease; a leftward shift of e. have no effect on; no change in

a

An increase in the general price level will lead to a. an upward movement along the short-run aggregate supply curve as firms increase output. b. a rightward shift of the short-run aggregate supply curve as firms increase output. c. a downward movement along the short-run aggregate supply curve as firms decrease output. d. a leftward shift of the short-run aggregate supply curve as firms decrease output. e. no change in output because input prices are sticky.

a

A bond is a(n) a. form of direct finance. b. form of indirect finance. c. alternative to a contract. d. alternative to a loan. e. form of partial company ownership.

a

A fall in the price level that causes a change in the real value of wealth results in a. a downward movement along the aggregate demand curve. b. an upward movement along the aggregate demand curve. c. a rightward shift of the demand curve. d. a leftward shift of the demand curve. e. no change in the quantity of aggregate demand.

a

A family taking out a mortgage loan to buy a home is in effect playing a role similar to that of a a. bond issuer. b. bond buyer. c. stock issuer. d. stock buyer. e. financial intermediary.

a

A profit-maximizing firm will borrow money at a given interest rate, and use that money to fund an investment, if and only if the a. interest rate is less than the expected rate of return on the investment. b. interest rate is lower than rates expected in the near future. c. planned investment is expected to be profitable. d. interest rate is lower than it has been in the recent past. e. interest rate is less than the firm's historic profitability rate.

a

A rise in the price level that leads to a change in the interest rate, and therefore to a change in the quantity of aggregate demand, will cause a. an upward movement along the aggregate demand curve. b. a downward movement along the aggregate demand curve. c. a rightward shift of the aggregate demand curve. d. a leftward shift of the aggregate demand curve. e. no change in the quantity of aggregate demand.

a

An increase in aggregate demand is harmful because a. workers with sticky wages are paying more for goods and services. b. firms have sticky input prices and earn less profit. c. unemployment rises. d. output has risen above the full-employment level. e. wages will have to fall in the long run.

a

The notion of consumption smoothing means a. people tend to spend about the same amount each month. b. people tend to spend about the same amount each year, and if more is spent this year than in the past, they would tend to spend less next year. c. consumption varies less than income over a person's lifetime. In early life people tend to borrow, in late life people tend to dissave, but in their middle years they tend to save. d. consumption patterns tend to correlate perfectly with income. People spend the exact amount of their incomes over their lifetimes. e. consumption tends to vary more than income over a person's lifetime. Although people should smooth their consumption over the years, they don't. If consumption were smoothed, people would be better off.

c

The percent change in real per capita gross domestic product (GDP) equals the a. percent change in nominal GDP. b. percent change in nominal GDP minus the rate of population growth. c. percent change in nominal GDP minus the rate of population growth minus the percent change in prices. d. rate of population growth minus the percent change in prices. e. rate of population growth.

c

The sellers (or lenders) in financial markets are a. financial intermediaries. b. firms and governments in search of funds to undertake their daily operations. c. savers looking for opportunities to earn a return on their savings. d. not concerned with the interest rate in the market. e. located on the demand side of the loanable funds market.

c

The supply of loanable funds comes from a. households and is downward sloping. b. firms and is upward sloping. c. households and is upward sloping. d. the government and is upward sloping. e. either foreign entities or firms and is upward sloping.

c

We know that resources are important for economic growth. Which of the following statements about resources is true? a. All resources are ultimately man-made, because without their use by people, resources would have no value. b. Very few resources are truly scarce; in fact, most exist in abundance. c. Resources can be natural, like mineral deposits or forests, or man-made, like machinery and factories. d. All countries have the same endowments of resources. e. Most countries do a very poor job of exploiting the resources they have.

c

What is a commonly used term for noninvestment-grade bonds? a. amplified-risk securities b. low-yield securities c. junk bonds d. D-grade bonds e. lower medium bonds

c

What is the relationship between enforcing a nation's laws and economic growth? a. Enforcing laws is bad for growth. It interferes with efficient markets. b. Enforcing laws is bad for growth. It creates too much red tape and reduces investment. c. Enforcing laws is good for growth. It creates stability and incentivizes investment. d. Enforcing laws is good for growth. The government is always more efficient at making market decisions than individuals. e. Enforcing laws is neither good nor bad for growth. It depends on the laws.

c

When computing economic growth, changes in nominal gross domestic product (GDP) must be adjusted to reflect changes in the price level because a. prices are nearly impossible to measure by government economists. b. an increase in prices will decrease nominal GDP without any actual economic growth. c. an increase in prices will increase nominal GDP without any actual economic growth. d. changes in prices are primarily determined by the government. e. changes in prices are largely irrelevant for consumers.

c

When considering nominal gross domestic product (GDP) growth, inflation has ________ effect on real GDP growth. a. a negligible b. a positive c. a negative d. a mixed e. zero

c

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be a(n) a. rightward shift of the aggregate demand curve. b. leftward shift of the aggregate demand curve. c. upward movement along the aggregate demand curve. d. downward movement along the aggregate demand curve. e. downward movement along the aggregate supply curve.

c

Which of the following causes an increase in short-run aggregate supply? a. The price level increases. b. The price level decreases. c. Firms and workers expect the price level to fall. d. Firms and workers expect the price level to rise. e. There are fewer workers in the labor force.

c

Which of the following is true about the price level and aggregate supply? a. The price level influences aggregate supply in both the long run and short run. b. The price level influences aggregate supply in the long run but not in the short run. c. The price level influences aggregate supply in the short run but not in the long run. d. The price level never impacts aggregate supply. e. There is no clear relationship between the price level and aggregate supply.

c

Which of the following would cause an increase in the price level in the long run? a. The number of workers in the labor force increases. b. Net exports decrease. c. Investment increases. d. Natural resources increase. e. There is a temporary increase in the price of oil.

c