ECONS 102 Final
You have saved $747. Where should you go if you want to open a checking account? - the Federal Reserve in Washington, D.C. - a commercial bank - your local federal reserve district bank - the New York Federal Reserve district bank
a commercial bank
Suppose that with a real interest rate of 3%, no output gap exists in the economy. If the real interest rate is below 3%, the economic forecast predicts: - deflation in the economy. - a positive output gap. - decreased sales forecasts. - a recessionary output gap.
a positive output gap.
If managers expect inflation to approach the Federal Reserve's target, they have _____ expectations. - anchored - rational - adaptive - zero
anchored
Rapid growth in poorer countries leads to: - convergence in real GDP per person between poorer countries and richer countries. - divergence in real GDP per person between poorer countries and richer countries. - inadequate enforcement of property rights. - higher dependency ratios.
convergence in real GDP per person between poorer countries and richer countries.
A negative supply shock causes: - demand-pull inflation. - a surplus in consumer markets. - a decrease in unexpected inflation. - cost-push inflation.
cost-push inflation.
You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost. - go; less - not go; less - not go; greater - go; greater
go; greater
Which of the following causes shifts in the IS curve? - Spending shocks occur. - The real interest rate increases. - The real interest rate decreases. - Financial shocks occur.
Spending shocks occur.
Maria's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Gil orders two slices. From this information, we know that the marginal benefit to Gil of a second slice is at least _____, and the marginal benefit to Gil of a third slice is less than _____. - $1.50; $4.50 - $3.50; $4.50 - $3.50; $1.00 - $1.50; $1.00
$1.50; $1.00
If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years? - $22,204 - $17,949 - $10,133 - $15,900
$22,204
Janelle loves sashimi. Her first piece of sashimi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sashimi, how many pieces should she eat? - 11 - 8 - 10 - 5
10
If the labor force totals 100 million workers, and 90 million are working, then the unemployment rate is _____. - 5% - 90% - 1% - 10%
10%
If a country has a working-age population of 200 million, 135 million people with jobs, 10 million people who are unemployed and have given up looking for a job, and 5 million people who are unemployed and seeking employment, then its labor force is _____ million. - 140 - 145 - 150 - 135
140
If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at: - 3.5%. - 1.5%. - 2%. - 4%.
3.5%.
Which of the following is an investment? - Cameron saves $400 in his savings account. - Mary buys $4,000 worth of Alibaba stock. - Marios builds a new house. - Dale purchases a house that was built in 1940.
Marios builds a new house.
What affect will the release of the new Mercedes E-Class sedan have on last year's models that are still on the dealers' lots? Use supply and demand concepts to do your analysis. - The arrival of the new E-Class would cause the demand for the older model to fall to almost zero. - The arrival of the new E-Class would lead to an increase in demand for last year's model, and their prices would rise. - The arrival of the new E-Class would lead to an increased supply of last year's model, and their prices would fall. - The arrival of the new E-Class would lead to a decrease in demand for last year's model and their prices would fall.
The arrival of the new E-Class would lead to a decrease in demand for last year's model and their prices would fall.
Last month, Brayton lost his job at the local auto parts factory when the factory relocated. Brayton and his former coworkers have been looking for similar jobs, but they have found no openings. In Brayton's town, the _____ labor has _____. - demand for; risen - supply of; risen - supply of; fallen - demand for; fallen
demand for; fallen
If an aircraft is found to have software problems that could lead to a malfunction, the effect on the aircraft market will be that the: - demand will remain unchanged. - demand will decrease, and the price of the aircraft will fall. - demand will increase, and the price of the aircraft will rise. - supply will increase, and the price of the aircraft will fall.
demand will decrease, and the price of the aircraft will fall.
Purchases of foreign-produced goods and services are: - transfer payments. - imports. - exports. - net exports.
imports.
In the long run, an increase in saving will generally: - reduce the rate of economic growth. - leave the rate of economic growth unchanged. - increase the rate of economic growth. - increase consumption simultaneously.
increase the rate of economic growth.
Inflation arises due to: - changes in real output, changes in nominal output, and changes in the unemployment rate. - the negative output gap, the positive output gap, and unexpected inflation. - inflation expectations, potential output, and the non-accelerating inflation rate of unemployment (NAIRU). - inflation expectations, demand-pull inflation, and cost-push inflation.
inflation expectations, demand-pull inflation, and cost-push inflation.
The intersection of the IS curve and the MP curve determine: - the largest output gap. - the risk-free interest rate in the economy. - macroeconomic equilibrium. - the federal funds rate.
macroeconomic equilibrium.
If government expenditure rises by $40 billion and the multiplier in the economy is 2.5, then real GDP_____, and the IS curve shifts to the_____. - falls by $40 billion; left - rises by $40 billion; right - rises by $100 billion; right - rises by $16 billion; right
rises by $100 billion; right
Inflation is a(n): - rising aggregate price level. - rise in the unemployment rate. - expansion of output. - rise in wages.
rising aggregate price level.
Diminishing marginal product leads to: - increased supply of the item in the market. - lower opportunity costs of producing the item. - decreased profitability for a seller. - rising marginal costs for a seller.
rising marginal costs for a seller.
The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of: - scarcity. - inefficiency. - equilibrium. - inequity.
scarcity.
Cedar point amusement park reduces its entry fees. As a result of this price fall, - the demand will decrease. - the quantity demanded will be smaller. - the quantity demanded will be higher. - the demand will rise.
the quantity demanded will be higher.
Which of the following is consistent with the view that "fairness" means equality of outcomes? - equal productivity that yields equal pay - equal incomes - equal access to education - nondiscrimination in hiring processes
equal incomes
An automobile manufacturer installs a conveyor belt system for $670,000. The depreciation rate is 10% at the end of next year. The real interest rate is 6%. What is the user cost of the conveyor belt system for one year? - $26,800 - $40,200 - $67,000 - $107,200
$107,200
A university student faces the difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $10; she could work at the college library at a wage of $12; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to: - $0 - $6 - $18 - $12
$12
If an item costs $50 in Connecticut and the sales tax is 6.35%, you will pay a total of $_____ at the register. - $53.18 - $46.82 - $6.35 - $3.18
$53.18
Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is: - $6.5 trillion. - $7.5 trillion. - $9 trillion. - $10.5 trillion.
$7.5 trillion.
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $1,000, how much will you get after these deductions? - $91 - $62 - $29 - $909
$909
You open an investment account that earns a nominal interest rate of 4.2% a year. The current consumer price index is 108. In one year, the consumer price index is expected to go to 112. What is your expected real rate of return? - 3.7% - 0.5% - -0.5% - 4.2%
0.5%
If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is: - 2.8%. - 4.8%. - 0.8%. - 2.0%.
0.8%.
The table shows the monthly individual demand schedules of four students for soda. What is the total monthly market demand for soda at $2 per can? - 148 cans - 99 cans - 45 cans - 125 cans
125 cans
As part of a market research project, you survey six random people to see how much gas per week they would buy at various prices. The data you collect is in the accompanying table. What is the total demand for gasoline at $2.50 per gallon in your survey? - 22 gallons - 51 gallons - 77 gallons - 38 gallons
51 gallons
The Federal Reserve System is made up of the: - chair of the Federal Reserve, the president of the New York Federal Reserve district bank, and four other Federal Reserve district bank presidents. - Board of Governors and 12 Federal Reserve district banks. - president of the United States and 12 Federal Reserve district banks. - chair of the Federal Reserve and 12 Federal Reserve district banks.
Board of Governors and 12 Federal Reserve district banks.
Which of the following scenarios depicts a rational buyer? - Darwin buys a can of shoe polish at $4.50 when his marginal benefit from it is $3.75. - John walks into a grocery store and purchases monthly groceries without paying attention to the prices of groceries. - Mary values a bag of salad at $2, but she buys the bag of salad even when the price is $4. - Damien chooses to buy a sandwich for $5 when the marginal benefit of the sandwich to him is $7.
Damien chooses to buy a sandwich for $5 when the marginal benefit of the sandwich to him is $7.
If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following: - the quantity theory. - inflation targeting. - Fed rule-of-thumb. - money illusion.
Fed rule-of-thumb.
According to the _____, the target federal funds rate should be positively related to the _____ rate and _____ related to the unemployment rate. - Fed rule-of-thumb; inflation; positively - fiscal policy; inflation; positively - Fed rule-of-thumb; poverty; positively - Fed rule-of-thumb; inflation; negatively
Fed rule-of-thumb; inflation; negatively
In the IS-MP analysis in the Fed model, expansionary fiscal policy will shift the: - MP curve down. - IS curve to the right. - IS curve to the left. - MP curve up.
IS curve to the right.
The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation. - IS; MP; Phillips - demand for loanable funds; supply of loanable funds; AD - dollar demand; dollar supply; AS - AD; AS; Phillips
IS; MP; Phillips
How is monetary policy different from fiscal policy? - There is no difference between the two policies. - Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes. - Monetary policy is determined by the president, whereas fiscal policy is determined by the chair of the Federal Reserve. - Monetary policy focuses on correcting inflation, whereas fiscal policy focuses on unemployment.
Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.
Which of these is a government transfer? - Social Security payments to retired auto workers - purchases of tanks for the army - payments to contractors for maintenance of interstate highways - wages paid to U.S. senators
Social Security payments to retired auto workers
How do overnight reverse repurchase agreements work? - The Open Market Trading Desk sells bonds to banks and agrees to purchase the bonds back the next day at higher prices. This implicitly sets the floor for the federal funds rate. - They increase the amount of reserves held by financial institutions and thus allow banks to make more loans. - The Open Market Trading Desk makes loans to banks and charges them an interest rate higher or lower than the discount rate. - They set the exact federal funds rate that can be charged by financial institutions.
The Open Market Trading Desk sells bonds to banks and agrees to purchase the bonds back the next day at higher prices. This implicitly sets the floor for the federal funds rate.
Why does the Federal Reserve target inflation rather than unemployment? - The inflation rate is directly related to monetary policy and is thus an easier target to maintain. - The public will not see the Fed as credible if it targets the unemployment rate. - If inflation is kept low, this automatically keeps the economy at maximum sustainable employment levels. - The Fed cares more about inflation than about unemployment.
The inflation rate is directly related to monetary policy and is thus an easier target to maintain.
How does the law of diminishing marginal utility relate to changing income? - The total utility gained from a small income is higher than the total utility gained from a high income. - The marginal benefit of an extra dollar of income falls as income rises. - The marginal benefit of an extra dollar of income rises as income rises. - The total utility gained from a high income is lower than the total utility gained from a low income.
The marginal benefit of an extra dollar of income falls as income rises.
What might be an unintended effect of an inflation rate ceiling? - Businesses will not know the nominal interest rate. - The real interest rate can become negative if inflation is high enough. - It becomes impossible to calculate the real interest rate. - The real interest rate will always be very high, and this will discourage borrowing.
The real interest rate can become negative if inflation is high enough.
Which statement is correct? - Supply and demand cannot explain why a particular good or service becomes more expensive relative to other goods and services. - Employment levels remained stable during the Great Depression. - Inflation affects only the more advanced countries, whereas less advanced countries face deflation. - When the economy is in recession and jobs are hard to find, inflation tends to fall.
When the economy is in recession and jobs are hard to find, inflation tends to fall.
_____ is estimated by asking: "What is the _____ I am willing to pay to get this benefit (or avoid that cost)?" - Opportunity cost; most - Willingness to pay; least - Opportunity cost; least - Willingness to pay; most
Willingness to pay; most
The difference between a budget deficit and government debt is that: - a deficit is measured as of a particular time, whereas debt is measured over time. - a debt is the amount by which government spending exceeds tax revenues, whereas a deficit is the sum of money the government owes. - a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the sum of money the government owes. - a deficit harms the economy, whereas debt improves the economy.
a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the sum of money the government owes.
When using the Fed model to diagnose the economy, if a shock causes the real interest rate to fall, then the economy has been hit by _____ shock. - a supply - a spending - an inflation - a financial
a financial
When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock. - an inflation - a spending - a financial - a supply
a financial
A debt crisis occurs when: - a government cannot repay its loans. - consumers spend too much on credit cards. - interest rates rise. - bond markets weaken.
a government cannot repay its loans.
When using the Fed model to diagnose the economy, if the output gap has shifted without much movement in the real interest rate, then the economy has been hit by _____ shock. - a spending - a supply - an inflation - a financial
a spending
If you see a newspaper headline that says "Oil prices rise sharply," this is an example of _____ shock. - a financial - a supply - an interest rate - a spending
a supply
When using the Fed model to diagnose the economy, if inflation rises even though the economy is weak or if it falls even though the economy is strong, then the economy has been hit by _____ shock. - an inflation - a financial - a spending - a supply
a supply
Which of these does NOT constitute a government purchase of goods and services? - a surgeon's bill reimbursed under the Medicare program - new pavement for interstate highway I-95 - a federal prosecutor's salary - equipping U.S. air marshals with electroshock weapons
a surgeon's bill reimbursed under the Medicare program
Once you have identified the unexpected inflation from the Phillips curve: - add the nominal interest rate to arrive at the real interest rate. - add the expected inflation rate to get the actual inflation rate. - subtract the expected inflation rate to get the actual inflation rate. - equate it to the actual inflation rate.
add the expected inflation rate to get the actual inflation rate.
Monetary policy is defined as the: - change of the tax code to achieve economic changes. - implementation of ceilings on the federal funds rate in the economy. - adjustment of interest rates to influence economic conditions. - change in government spending to change economic conditions.
adjustment of interest rates to influence economic conditions.
A spending shock is any change in: - aggregate expenditure at a given interest rate and level of income. - borrowing conditions that changes the real interest rate at which people can borrow. - production costs that leads suppliers to change the prices they charge at any given level of output. - potential GDP in the economy.
aggregate expenditure at a given interest rate and level of income.
Taxable income is the: - amount of tax rebates that you receive at the end of the year. - amount of your income that you pay taxes on. - tax on social security. - tax rate you pay if you earn another dollar.
amount of your income that you pay taxes on.
If the economy is at potential output, and consumer spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is: - an increase in the money supply to decrease interest rates. - an increase in government spending. - a decrease in government transfers. - a decrease in government spending.
an increase in government spending.
The third step in analyzing a macroeconomic shock is to: - identify the shock and shift the curve. - find the output gap. - forecast future GDP growth. - assess inflation.
assess inflation.
The federal funds rate is the interest rate at which: - banks borrow funds directly from the Federal Reserve. - prominent companies borrow from banks. - banks borrow from other banks with excess reserves. - households' savings are invested in the Federal Reserve.
banks borrow from other banks with excess reserves.
A financial shock is any change in: - aggregate expenditure, at a given interest rate and level of income. - production costs that leads suppliers to change the prices they charge at any given level of output. - borrowing conditions that changes the real interest rate at which people can borrow. - potential GDP in the economy.
borrowing conditions that changes the real interest rate at which people can borrow.
In Venezuela, the bolivar, the domestic currency, lost value because the government printed excess amounts of money to fund its budget deficit. This situation can happen if the: - central bank is very powerful and independent of the political process. - bond markets in the country are very strong. - central bank is not independent of the political process. - inflation in the country is well controlled.
central bank is not independent of the political process.
Which of these is NOT a tool of fiscal policy? - government purchases of goods and services - changes in the money supply - government transfers - changing tax rates
changes in the money supply
A trade-off involves weighing: - external costs. - costs and benefits. - social costs. - private costs.
costs and benefits.
Banks whose current reserves are lower than the reserve requirement: - have excess reserves. - supply overnight loans. - demand overnight loans. - supply bonds in the bond market.
demand overnight loans.
The Affordable Care Act is an example of: - health care spending. - mandatory spending. - military defense spending. - discretionary spending.
discretionary spending.
Automatic stabilizers are government spending and taxation changes that cause fiscal policy to be _____ when the economy contracts. - contractionary - ineffective - expansionary - neutral
expansionary
The decision to build more aircraft carriers to keep employment high is an example of: - neutral fiscal policy. - prudent defense spending. - being prepared to defend the country. - expansionary fiscal policy.
expansionary fiscal policy.
In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. - expansionary; lowers; raises - contractionary; raises; lowers - contractionary; lowers; raises - expansionary; raises; lowers
expansionary; raises; lowers
Loans of reserves from one bank to another are made in the _____ market. - foreign exchange - federal funds - commodity - stock
federal funds
Social insurance programs are: - government programs intended to protect families against economic hardships. - programs to help unemployed people have a social life. - private insurance policies that protect families from hardships caused by government actions. - private insurance policies that cover gaps in government-provided health care.
government programs intended to protect families against economic hardships.
Government spending adds directly to GDP through _____ and indirectly through _____. - government purchases; transfer payments - transfer payments; government purchases - government purchases; military spending - higher interest rates; crowding out
government purchases; transfer payments
A budget surplus occurs when: - imports exceed exports. - government revenue exceeds government spending. - government spending exceeds government revenue. - discretionary spending exceeds automatic spending.
government revenue exceeds government spending.
A budget deficit occurs when: - imports exceed exports. - discretionary spending exceeds automatic spending. - government spending exceeds government revenue. - government revenue exceeds government spending.
government spending exceeds government revenue.
Consumer spending will likely rise if: - the government raises tax rates. - the government raises tax rates or government transfers fall. - government transfers fall. - government transfers rise.
government transfers rise.
Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 3%, then the Fed will want the new real interest rate to be: - higher than the neutral interest rate. - lower than the neutral interest rate. - equal to the inflation rate. - equal to the neutral interest rate.
higher than the neutral interest rate.
Leading economic pundits predict inflation. Businesses believe these forecasts and raise prices accordingly. This scenario describes: - demand-pull inflation. - how positive output gaps create inflation. - a situation where inflation expectations are higher than actual inflation. - how credible inflation expectations create inflation.
how credible inflation expectations create inflation.
The first step in analyzing a macroeconomic shock is to: - assess inflation. - identify the shock and shift the curve. - find the output gap. - forecast future GDP growth.
identify the shock and shift the curve.
Expansionary fiscal policy: - increases long-run aggregate supply. - decreases aggregate demand. - increases aggregate demand. - decreases long-run aggregate supply.
increases aggregate demand.
If overall spending declines, causing the economy to contract, the government could counter this by: - increasing government spending. - raising tax rates. - decreasing government spending. - decreasing government transfers.
increasing government spending.
If the economy is in short-run macroeconomic equilibrium above potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate. - inflationary; expansionary - recessionary; expansionary - inflationary; contractionary - recessionary; contractionary
inflationary; contractionary
Discretionary fiscal policy may fail to stabilize the economy and even destabilize it because of: - government waste. - its ineffectiveness. - lags in decisions regarding the implementation of policy changes. - the business cycle.
lags in decisions regarding the implementation of policy changes.
The Federal Reserve's lender-of-last-resort function means that it: - buys long-term bonds in an effort to lower long-term interest rates. - lends to financial institutions when they are having trouble getting loans. - borrows from financial institutions even when the general public has reduced borrowing. - oversees lending regulations in commercial banks.
lends to financial institutions when they are having trouble getting loans.
On the border between Venezuela and Colombia, vendors create aristic images using Venezuelan bolivars (the currency of Venezuela) as a medium. This scenario shows the: - rise in the value of the currency. - loss in the value of the currency. - lack of monetary policy decisions. - deflation in the country.
loss in the value of the currency.
If there is deflation of 1% and a firm wants to leave real wages unchanged, it will need to: - lower nominal wages by 1%. - leave nominal wages unchanged. - raise nominal wages by 1%. - lower real wages by 2%.
lower nominal wages by 1%.
If the problem in the economy is very high cyclical unemployment, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. - raise; reduce - raise; induce - lower; induce - lower; reduce
lower; induce
The threat of future inflation: - increases the value of money paid back in the future. - makes people reluctant to lend money for long periods. - has no effect on people's willingness to lend money. - makes people eager to lend money for long periods.
makes people reluctant to lend money for long periods.
The level of household income at which half of the households in the population earn more and half of the households in the population earn less is the: - median household income - Gini coefficient. - poverty level. - mean household income.
median household income
Which of the following services are provided by the federal government? - sewer services - bus services - trash and recycling - military defense
military defense
The purpose of "Fedspeak" was to: - encourage debate between Federal Open Market Committee (FOMC) members. - minimize market reactions from Federal Reserve statements. - ensure that the Federal Reserve's inflation target was never understood by the general public. - establish the Federal Reserve's dual mandate.
minimize market reactions from Federal Reserve statements.
A $100 million increase in government spending increases equilibrium GDP by: - zero. - $100 million. - less than $100 million. - more than $100 million.
more than $100 million.
The federal funds rate is the: - nominal interest rate that banks pay on overnight interbank loans. - interest rate on loans from the Federal Reserve's discount window. - interest rate the public pays on loans from banks. - nominal interest rate minus the inflation rate.
nominal interest rate that banks pay on overnight interbank loans.
The rate of unemployment is found by dividing the: - number of people not working but seeking work by the sum of the number of people not working but seeking work and the number of people employed. - unemployed and discouraged workers by the labor force. - labor force by the number of people seeking work. - number of people looking for work by the population.
number of people not working but seeking work by the sum of the number of people not working but seeking work and the number of people employed.
Commercial banks: - offer services, such as checking accounts, to the general public. - serve only commercial businesses and not the general public. - are banks that sell stock in the Federal Reserve. - are equivalent to Federal Reserve district banks.
offer services, such as checking accounts, to the general public.
The monetary policy tool whereby the Federal Reserve buys and sells government bonds is called: - moral suasion. - reserve requirements. - the discount rate. - open-market operations.
open-market operations.
If unemployment is below its sustainable level, then the economy is: - operating below capacity, and inflation will likely fall. - operating above capacity, and inflation will likely rise. - experiencing below normal growth rates. - at potential GDP, and inflation is at its target level.
operating above capacity, and inflation will likely rise.
Assuming that the reserve requirement is greater than zero, if it looks as if a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the: - open market and borrow money there. - other member banks and borrow money at the federal funds rate. - Federal Reserve and borrow money at the discount rate. - Congress to borrow funds.
other member banks and borrow money at the federal funds rate.
In the IS-MP analysis in the Fed model, the intersection of the IS and MP curves determines the: - unemployment rate. - output gap. - potential GDP. - equilibrium exchange rate.
output gap.
A supply shock is any change in: - production costs that leads suppliers to change the prices they charge at any given level of output. - aggregate expenditure at a given interest rate and level of income. - potential GDP in the economy. - borrowing conditions that changes the real interest rate at which people can borrow.
production costs that leads suppliers to change the prices they charge at any given level of output.
Quantitative easing is the: - purchase of bonds by the Federal Reserve. - purchase of large quantities of longer-term government bonds and other securities in an effort to drive down longer-term interest rates. - setting of the discount rate by the Federal Reserve in an effort to increase loans to the banking sector. - sale of both short-term and long-term government bonds by the government.
purchase of large quantities of longer-term government bonds and other securities in an effort to drive down longer-term interest rates.
A sales tax is a tax on: - inputs used in the production of goods and services. - imports. - income earned. - purchases that is typically a percentage of the purchase price of goods and services.
purchases that is typically a percentage of the purchase price of goods and services.
If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____. - raise; reduce unemployment - lower; cool inflationary pressures - lower; reduce unemployment - raise; cool inflationary pressures
raise; cool inflationary pressures
If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. - raise; up - lower; down - lower; up - raise; down
raise; down
If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. - raise; down - lower; down - raise; up - lower; up
raise; down
If the problem in the economy is continuous higher-than-expected increases in the consumer price index, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. - lower; reduce - raise; reduce - raise; induce - lower; induce
raise; reduce
In an inflationary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. - lower; induce - raise; reduce - lower; reduce - raise; induce
raise; reduce
The neutral interest rate is the rate at which: - real GDP exceeds potential GDP. - real interest rates equal nominal interest rates. - real GDP equals potential GDP. - the inflation rate is equal to zero.
real GDP equals potential GDP.
Cost-push inflation is inflation that arises from an unexpected: - fall in demand. - fall in production costs. - rise in production costs. - rise in unemployment.
rise in production costs.
Excess demand leads to a: - surplus and falling prices. - shortage and rising prices. - shortage and falling prices. - surplus and rising prices.
shortage and rising prices.
In Canada, all the provinces provide health care to all citizens and permanent residents. This is an example of: - crowding out. - social insurance. - taxes. - an item that counts toward GDP.
social insurance.
Investment refers to: - spending on financial assets such as stocks. - saving money in banks. - spending on physical capital. - depreciation of capital stocks.
spending on physical capital.
If a government is using fiscal policy, this means that it is using _____ and _____ to attempt to stabilize the economy. - spending; tax policies - interest rates; tax policies - spending; interbank loans - bonds; stock markets
spending; tax policies
The 1973 OPEC oil embargo is an example of a negative _____ shock to the U.S. economy. - financial - supply - deflation - spending
supply
Insufficient demand leads to a: - surplus and falling prices. - shortage and rising prices. - shortage and falling prices. - surplus and rising prices.
surplus and falling prices.
If the government's revenues are greater than its purchases of goods and services, then it has a budget: - surplus. - equality. - defecit. - balance.
surplus.
The marginal tax rate is the: - tax on social security. - amount of your income that you pay taxes on. - amount of tax rebates that you receive at the end of the year. - tax rate you pay if you earn another dollar.
tax rate you pay if you earn another dollar.
You are the manager of a local bank. If your bank is experiencing a bank run, where can you turn to for a loan if no other banks will lend to you? - the government - the market for overnight loans - the Federal Reserve - your customers
the Federal Reserve
The New Deal was created to counter the effects from: - the OPEC oil crisis. - the Great Recession of 2007 to 2009. - hyperinflation. - the Great Depression.
the Great Depression.
Who runs the Federal Reserve of the United States? - the chief of the Armed Forces - the president of the United States - the speaker of the House of Representatives - the chair of the Federal Reserve
the chair of the Federal Reserve
Which item would NOT be included in GDP? - the dollar value of a repair job done by your cousin on her own car - the dollar value of a lawyer's service - the value of new cars not sold in the current year - new car sales by a local dealer
the dollar value of a repair job done by your cousin on her own car
The law of demand refers to: - the inverse relationship between price and quantity demanded. - the positive relationship between price and quantity supplied. - the inverse relationship between price and quantity supplied. - the positive relationship between price and quantity demanded.
the inverse relationship between price and quantity demanded.
Which of the following increases the effectiveness of fiscal policy? - time lags - monetary policy - the multiplier effect - crowding out
the multiplier effect
The law of supply refers to: - the positive relationship between price and quantity demanded. - the inverse relationship between price and quantity demanded. - the positive relationship between price and quantity supplied. - the inverse relationship between price and quantity supplied.
the positive relationship between price and quantity supplied.
If the economy is below potential and interest rates are at the zero bound, how can the Federal Reserve still push long-term interest rates down? - through forward guidance and quantitative easing - through the Open Market Trading Desk at the New York Federal Reserve district bank - by using open market operations - by relying on fiscal policy
through forward guidance and quantitative easing
Government payments to households for which no good or service is provided in return are called: - transfer payments. - government purchases. - consumption expenditures. - investment expenditures.
transfer payments.
Medicaid, Medicare, and Social Security are examples of: - taxes. - unilateral payments. - transfer payments. - monetary policy.
transfer payments.
An understanding of the state of the economy, projections on economic growth, the floor framework, and the way the Federal Reserve works allows you to: - accurately forecast the spread between short-term and long-term interest rates. - predict the size of the future output gap. - understand which way interest rates might change. - predict the exact inflation rate in the future.
understand which way interest rates might change.
A worker classified as frictionally unemployed is one who is: - discouraged from seeking employment and so has dropped out of the labor force. - unemployed while looking for a job that suits his or her skills. - working part time but would prefer to work full time. - laid off during a recession.
unemployed while looking for a job that suits his or her skills.
The equilibrium unemployment rate cannot be equal to zero because: - it is the sum of the frictional and structural unemployment rates. - of the existence of cyclical unemployment. - of the minimum wage law. - demand and supply can never reach equilibrium in labor markets.
it is the sum of the frictional and structural unemployment rates.
In 1798, the English economist Thomas Malthus predicted that: - rising population growth would cause productivity per capita to fall. - the French Revolution would improve the economies of most European countries. - the recently independent United States would rejoin the British empire out of economic necessity. - countries with a large supply of natural resources would enjoy economic growth.
rising population growth would cause productivity per capita to fall.
If expected future profits in an industry fall, - supply is not affected. - the number of sellers in the market does not change. - supply will shift left. - supply will shift right.
supply will shift left.
It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park? - $5 - $12 - $7 - $0
$12
A growing number of utility companies are using drones for site inspections. What is the effect of these changes on the equilibrium price and quantity, in the market for drones? - The equilibrium price falls, and the equilibrium quantity rises. - The equilibrium price rises and the equilibrium quantity falls. - The equilibrium price rises and the change in equilibrium quantity is ambiguous. - Both the equilibrium price and the equilibrium quantity will rise.
Both the equilibrium price and the equilibrium quantity will rise.
Which statement is TRUE, according to standard economic theory? - Rational people use trade-off analysis when making "how much" decisions. - The true cost of a choice is what you must give up when choosing between alternatives. - Resources are scarce when they can satisfy everyone's wants. - People typically do not make choices that will make them better off.
Resources are scarce when they can satisfy everyone's wants.
Which of the following tax systems is progressive? Corinne pays a 10% tax on the first $10,000 she earns plus _____ tax on any additional income. - a 5% - no - a 10% - a 25%
a 25%
Efficiency wages are: - above-equilibrium wages designed to encourage better performance and the source of structural unemployment. - below-equilibrium wages designed to encourage better performance among workers seeking higher pay. - the source of structural unemployment. - above-equilibrium wages designed to encourage better performance.
above-equilibrium wages designed to encourage better performance.
Unexpected inflation is: - actual inflation minus expected inflation. - average expected inflation over time. - expected inflation plus the highest inflation forecast. - actual inflation plus expected inflation.
actual inflation minus expected inflation.
Transfer payments: - are a means by which the government raises funds. - is another term for government taxation. - are a redistribution of funds from one individual to another individual. - are counted in GDP.
are a redistribution of funds from one individual to another individual.
When inflation rises unexpectedly, borrowers will _____, and lenders will _____. - benefit; benefit - benefit; be hurt - be hurt; be hurt - be hurt; benefit
benefit; be hurt
Deflation is a: - decline in wages. - decreasing aggregate price level. - decrease in unemployment. - recession.
decreasing aggregate price level.
Which of these choices is correct? Holding all else equal, assuming no supply-side shock, the: - lower the unemployment rate, the lower the unexpected inflation. - higher the unemployment rate, the higher the unexpected inflation. - more positive the output gap, the higher the unemployment rate. - lower the unemployment rate, the higher the unexpected inflation.
lower the unemployment rate, the higher the unexpected inflation.
Underemployed people are counted as employed, even though they are _____. - not fully using their skills - not working - in the military - collecting unemployment benefits
not fully using their skills
Among the factors that are important for modern economic growth are: - growth accounting. - natural resources. - property rights. - covergence.
property rights.
The Treasury inflation-protected security (TIPS) is a bond with a principal value that fluctuates relative to changes in the consumer price index. The interest on the bond is calculated on the adjusted principal. This instrument has an advantage over a regular bond because it: - has a return that matches the economic growth rate. - protects the saver against inflation. - protects the saver against supply-side shocks. - has a real return that is zero.
protects the saver against inflation.
The capital stock in an economy is the: - total quantity of capital at a point in time. - total amount of money at a point in time. - user cost of capital. - present value of a future stream of payments.
total quantity of capital at a point in time.
A fixed nominal interest rate of _____ with _____ inflation will yield the highest real rate of return for a lender. - 19%; 15% - 9%; 5% - 10%; 7% - 7%; 2%
7%; 2%
If the price level at the end of year 1 is 110, and the price level at the end of year 2 is 120, the inflation rate in year 2 is _____. - 12% - 120% - 10% - 8.3%
8.3%
Unemployment rates are usually highest for: - white teenagers. - African American teenagers. - male workers aged 25-54. - female workers aged 25-54.
African American teenagers.
A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate? - The cost-benefit principle - The opportunity cost principle - The marginal principle - Diminishing marginal product
Diminishing marginal product
Which of the following scenarios illustrates the law of demand? - Kathleen eats more steak when the price is low, and less when the price is high. - Francis does not care about the price of coffee at the coffee shop - he must buy two cappuccinos every day, regardless of the price. - John likes to drink spring water. At $2 he buys four bottles of water, and at $1.50 he still buys four bottles of water. - A research company finds that the more expensive a particular brand of a designer handbag, the more that consumers are willing to purchase the brand.
Kathleen eats more steak when the price is low, and less when the price is high.
In June 2019, India imposed a tariff on almonds from the United States. How does this affect the IS curve in the U.S.? - Interest rates fall, leading to a left shift in the IS curve. - Net exports decrease, leading to a left shift of the IS curve. - Government expenditure decreases, leading to a left shift of the IS curve. - Net exports increase, leading to a right shift of the IS curve.
Net exports decrease, leading to a left shift of the IS curve.
You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. Up-front cost: $350,000 Next year's revenue: $45,000 Real interest rate: 8% Depreciation rate: 10% How much profit does the project yield, and should your client invest in this project? - No, the client should not invest because the project yields a $100,000 loss. - Yes, the client should invest because the project yields a $305,000 profit. - No, the client should not invest because the project yields a $305,000 loss. - Yes, the client should invest because the project yields a $100,000 profit.
No, the client should not invest because the project yields a $100,000 loss.
Which of the following is not a demand shifter? - The price of a substitute good. - The number of buyers in the market. - The price of the product. - The price of a complementary good.
The price of the product.
Junko is a single mother who earns $17,000 per year. She receives $3,000 per year in in-kind transfers and a $1,000 earned income tax credit. If her earned income rises to $22,000, she will lose the tax credit and $500 of her in-kind transfer benefits. What is Junko's effective marginal tax? - 37.5% - 30.0% - 6.8% - 8.8%
30.0%
What is the relationship between lower interest rates and aggregate expenditure? - Lower interest rates raise consumption and investment but lower government purchases and net exports, and thus they have an indeterminate effect on aggregate expenditure. - Lower interest rates boost aggregate expenditure. - Aggregate expenditure is not affected by changes in real interest rates. - Lower interest rates cause aggregate expenditure to fall.
Lower interest rates boost aggregate expenditure.
How do interest rates affect investment in the economy? - Higher interest rates increase government expenditure and thus raise investment. - Lower interest rates lower the after-tax profit for firms, and thus investment falls. - Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks. - Lower interest rates lower the cost of borrowing for firms, and so investment rises.
Lower interest rates lower the cost of borrowing for firms, and so investment rises.
Which of the following scenarios does NOT depict a rational seller? - An auto-rickshaw driver in New Delhi, India, calculates a trip to have a marginal cost of 350 rupees and accepts a ride request for 500 rupees. - United Airlines determines the marginal cost of an extra passenger to be $55 and sells a discount seat for $150. - Main Street Bakery calculates the marginal cost of a multilayer red velvet cake sd $9 and sells it for $8. - The Flowery Bower calculates the marginal cost of a bouquet of red roses as $10 and sells it at $45.
Main Street Bakery calculates the marginal cost of a multilayer red velvet cake sd $9 and sells it for $8.
Which of the following is NOT a factor that can shift supply? - The price of a substitute-in-production. - The market price of a product. - The price of a complement-in-production. - The expected future price of a product.
The market price of a product.
There are empty candy shelves at Walmart on the day before Halloween. Which of the following explains this event? - Walmart decided that kids should not have candy on Halloween. - There is a rise in the equilibrium price of candy. - There is a surplus in the candy market. - There is a shortage in the candy market.
There is a shortage in the candy market.
Sunk costs are costs that: - are potential costs associated with a particular decision. - are part of the opportunity costs of a decision. - are incurred in the past and cannot be reversed. - should be considered in any decision.
are incurred in the past and cannot be reversed.
Surpluses always occur: - at prices below the equilibrium price. - at prices above the equilibrium price. - at the equilibrium price. - when the quantity demanded exceeds the quantity supplied.
at prices above the equilibrium price.
The cost-benefit principle states that a decision should be pursued only if the: - costs are negative. - benefits are positive. - benefits are greater than the costs. - costs are greater than the benefits.
benefits are greater than the costs.
In periods of unexpected inflation: - lenders benefit, since they are repaid in dollars whose real value has risen. - borrowers benefit, since they repay their loans in dollars whose real value has declined. - neither borrowers nor lenders are affected, since nominal interest rates stay the same. - lenders benefit, since nominal interest rates do not change.
borrowers benefit, since they repay their loans in dollars whose real value has declined.
You spend $45 on a haircut, $30 on a couple of T-shirts, and $17 on lunch at a restaurant. In which component of aggregate expenditure are these expenditures included? - government expenditure - consumption - planned investment - exports
consumption
The poverty line is adjusted each year to reflect: - changes in the cost of living. - changes in the cost of living and changes in the size of the average family. - changes in the size of the average family. - the long-term rise in the average standard of living.
changes in the cost of living.
If the Canadian dollar appreciates, this makes foreign goods cheaper for Canadians. As a result: - foreign buyers are now willing to pay more for Canadian goods. - competitive pressure on Canadian businesses is increased, leading Canadian businesses to lower prices. - competitive pressure on Canadian businesses is released, leading some Canadian businesses to raise prices. - cost of inputs increase for Canadian businesses that use foreign-made inputs.
competitive pressure on Canadian businesses is increased, leading Canadian businesses to lower prices.
Unemployment due to the time workers spend in job search is _____ unemployment. - natural - frictional - structural - cyclical
frictional
Depreciation refers to the: - decline in capital due to wear and tear, obsolescence, accidental damage, and aging. - decline in the quality of output produced by a business. - fall in the price of output that the business produces. - spending by a business on new capital assets.
decline in capital due to wear and tear, obsolescence, accidental damage, and aging.
Cyclical unemployment is unemployment: - due to the time it takes for employers to search for workers and for workers to search for jobs. - due to a temporary downturn in the economy. - that occurs because of seasonal changes. - that occurs because wages don't fall to bring labor demand and labor supply into equilibrium.
due to a temporary downturn in the economy.
Planned investment is the: - planned purchases of stocks and bonds by consumers. - use of electricity and water by factories. - expenditure on goods and services by consumers. - expenditure on capital goods by businesses.
expenditure on capital goods by businesses.
The risk premium is the: - extra rise in interest rates when the Federal Reserve identifies an output gap. - extra interest charged by lenders to account for risk. - federal funds rate. - risk-free rate of interest.
extra interest charged by lenders to account for risk.
You go to Starbucks and see that the price of your favorite tall vanilla latte has gone up by 25 cents. All sizes of the vanilla lattes are now more expensive. As a result of this price increase, you would expect to see a: - rise in the quantity demanded of vanilla lattes. - fall in the quantity demanded of vanilla lattes. - rise in the demand for vanilla lattes. - fall in the demand for vanilla lattes.
fall in the quantity demanded of vanilla lattes.
As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will: - rise, due to a rise in demand. - fall, due to a rise in supply. - fall, due to a fall in demand. - rise, due to a fall in supply.
fall, due to a rise in supply.
The construction of new housing is considered part of: - consumption. - private saving. - investment spending. - government purchases of goods and services.
investment spending.
An example of human capital is a person's: - job skills. - money. - capital goods or machines. - stocks and bonds.
job skills.
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you: - take the individual supply of one supplier. - find the average quantity produced by the ten suppliers. - take one-tenth of the individual supply of each supplier and add it up. - multiply the individual supply of one of the suppliers by ten.
multiply the individual supply of one of the suppliers by ten.
Suppose that the price of rare earth metals is increasing (this is one of the main components of most smartphones). As a consequence, people expect the price of smartphones to rise next year. Therefore, people will MOST likely: - purchase fewer smartphones this year. - observe higher prices for smartphones this year. - decide to wait and purchase the smartphones next year. - purchase the same amount of smartphones, since this expectation will have no effect on consumers this year.
observe higher prices for smartphones this year.
The inflation rate is the: - price level in the current year minus the price level in the previous year. - price level in the current year plus the price level in the previous year. - percentage change in the price level from one year to the next. - price level in the current year multiplied by the price level in the previous year.
percentage change in the price level from one year to the next.
The minimum annual income, of which a family that earns a lower amount is considered in poverty, is the: - poverty line. - minimum requirement criterion. - incomplete educational attainment level of income. - income threshold.
poverty line.
Real per capita GDP is: - real GDP divided by the population. - real GDP divided by the amount of capital available in the economy. - rarely used as a tool to compare countries' possible resources. - not a useful measure of human welfare.
real GDP divided by the population.
In an economy whose aggregate real output is growing faster than the total population: - living standards are declining. - real GDP per capita is rising. - national income is falling. - nominal GDP per capita is decreasing.
real GDP per capita is rising.
The _ interest rate ___. - real; can be zero, positive, or negative - nominal; can only be positive - real; can only be positive - real; cannot be negative
real; can be zero, positive, or negative
In macroeconomics, the difference between saving and investment is that: - saving is the money left over after paying for spending, and investment is the purchase of stocks and bonds. - saving does not depend on income, but investment depends on profitability. - saving is the money left over after paying for spending, and investment is the purchase of new capital. - saving is created by the government, and investment is specific to firms.
saving is the money left over after paying for spending, and investment is the purchase of new capital.
The Phillips curve is upward-sloping because: - the more positive the output gap, the higher inflation rises above expected inflation. - when prices rise, quantity supplied rises. - higher unemployment is not related to unexpected inflation. - the more positive the output gap, the lower inflation is when compared to expected inflation.
the more positive the output gap, the higher inflation rises above expected inflation.
The MOST important use of GDP is as a measure of: - the size of the economy. - the level of unemployment. - rates of return in financial markets. - changes in the price level.
the size of the economy.
High unemployment occurs when: - inflation rises above inflation expectations. - the output gap is positive. - the output gap is equal to zero. - there is insufficient demand.
there is insufficient demand.
