AP Macro Final

Which of the following institutional structures promote economic growth? I. Private property rights II. A command economy III. Widespread public education IV. Strong trade barriers (A) I only (B) I and III only (C) II and IV only (D) II, III, and IV only (E) I, II, III, and IV

I and III only (b)

The capital and financial account balance includes a nation's I. net international investment income II. international net debt forgiveness III. net real and financial international asset purchases and sales (A) I only (B) II only (C) III only (D) I and II only (E) II and III only

II and III only (e)

Economic investment includes I. stocks and bonds bought for capital gain II. purchases of new machinery and tools for production III. real estate bought for capital gain IV. construction of new warehouses and factories to assist production (A) I only (B) I and III only (C) II only (D) II and IV only (E) II, III, and IV only

II and IV only (d)

What is the purpose of diversification? a. To increase risk b. To increase volatility c. To reduce the overall risk of a portfolio d. To increase the overall risk of a portfolio e. To guarantee higher returns

To reduce the overall risk of a portfolio (c)

Total demand for money equals: a. GDP minus inflation b. Transaction demand time two c. Transaction demand plus asset demand d. Interest rate plus inflation

Transaction demand plus asset demand (c)

Customer deposits at commercial banks are insured by the (A) Federal Reserve Board of Governors (B) Federal Deposit Insurance Corporation (C) World Bank (D) General Accountability Office (E) Congress

Federal Deposit Insurance Corporation (b)

expansionary monetary policy is most appropriate when: a. The unemployment rate is low b. The inflation rate is too high c. GDP is falling d. The money supply is high e. Interest rates are low

GDP is falling (c)

Which of these policies would lead to an increase in production possibilities? (A) Decreasing government spending for public education (B) Government increasing the minimum working age to 18 (C) Increasing property taxes for business property (D) Government granting tax credits to firms that buy new equipment (E) Stopping government funding of university research

Government granting tax credits to firms that buy new equipment (d)

A recession is generally characterized by I. a decrease in real GDP II. a decrease in employment III. an increase in price level (A) I only (B) III only (C) I and II only (D) II and III only (E) I, II, and III

I and II (c)

An increase in American consumers' demand for Mexican chili peppers causes the I. value of the Mexican peso to increase II. value of the U.S. dollar to decrease III. reduction in the U.S. trade deficit (A) I only (B) III only (C) II and III only (D) I and II only (E) I, II, and III

I and II only (d)

A change in each of the following factors will cause the short-run aggregate supply to shift EXCEPT (A) input prices (B) level of real output (C) input productivity (D )business taxes (E) business subsidies

level of real output (b)

The end result of a restrictive monetary policy is expected to be: a. Higher GDP b. Higher inflation c. Lower GDP d. Lower interest rates e. A&B

lower GDP (c)

Each of these factors would increase economic growth EXCEPT an increase in (A) the labor supply (B) technology (C) the amount of capital (D) the quality of workers (E) the corporate tax rate

the corporate tax rate (e)

Classical theorists believed that if total spending in the economy fell below full-employment output, (A) the economy would self-correct through lower wages and prices (B) government should intervene by raising spending (C) government should correct the problem by raising taxes (D) the economy would tend to remain below full-employment output for months (E) lower imports and increased exports would correct the imbalance

the economy would self-correct through lower wages and prices (a)

Inflation is defined as an increase in (A) real GDP beyond potential GDP (B) the general level of prices (C) the value of the dollar (D) the purchasing power of money (E) nominal GDP

the general level of prices (B)

Aggregate demand is the sum of the demand from all of the following sectors of the economy EXCEPT (A) the import sector (B) the export sector (C) the government sector (D) the consumer sector (E) the investment sector

the import sector (a)

Because of short-run price stickiness, the economy generally responds to negative demand shocks by increasing (A) output (B) wages (C) unemployment (D) prices (E) real GDP

unemployment (c)

if (1 + .12)3 = 1.40, then what is the present value of $150 received in 3 years if the annual interest rate is 12 percent? a. $100.12 b. $112.10 c. $107.14 d. $12.10

$107.14 (,C)

If Mary invested $200 at an annual interest rate of 5 percent it will be worth how much at the end of 1 year? What would the investment be worth if she waited until year 2 to collect, assuming all interest earned remains in the account? a. $190/$255.26 b. $210/$220.50 c. $210/$210.25 d. $195/$200.00 e. $220.50/$210

$210/$220.50 (b)

If firms increase investment by $5 million and the marginal propensity to consume is 0.8, what is the maximum possible change in real GDP? (A) $40 million (B) $3 million (C) $2 million (D) $10 million (E) $25 million

$25 million (e)

If the economy experiences a recession with a current spending gap $1,000 below full-employment output, and the marginal propensity to consume is 0.8, how much must government increase spending to restore the economy to full-employment GDP? (A) $ 500 (B) $ 200 (C) $ 800 (D) $ 5 (E) $ 20

$500 (a

When Ede's average propensity to consume (APC) is 0.8, if her total income is (A) $1,000, she will consume $80 (B) $500, she will save $100 (C) $200, she will consume $250 (D) $100, she will save $80 (E) $600, she will consume $120

$500, she will save $100

. Assume a bank has no excess reserves and the reserve requirement is 20 percent. If a customer deposits $20,000 in currency into his checking account, what is the maximum amount by which banks will increase the money supply through multiple deposit expansion in the banking system? (A) $4,000 (B) $20,000 (C) $40,000 (D) $80,000 (E) $100,000

$80,000 (d)

if the reserve requirement is 25%, what is the money multiplier? (A) 0.25 (B) 0.50 (C) 4 (D) 5 (E) 25

4 (c)

If an investment has 25 percent less non-diversifiable risk than the market portfolio, its beta will be: a. 35 b. 1.35 c. .35 d. .75 e. 1.25

.75 (d)

an investment has a 50 percent chance of generating a 10 percent return and a 50 percent chance of generating a 20 percent return. What is the investment's average expected rate of return? a. 5 percent b. 10 percent c. 13 percent d. 15 percent e. 30 percent

15 percent (d)

If someone buys a classic car today for $25,000 and sells it in one year for $30,000, what is the percentage rate of return? a. 20 percent b. 10 percent c. 5 percent d. 15 percent e. -20 percent

20 percent (a)

If the consumer price index (CPI) for this year is 240 and the CPI for last year was 200, what is the rate of inflation for this year? (A) -40% (B) 1.2% (C) 20% (D) 40% (E) 83%

20% (c)

If the 2009 real GDP of a country was $2.6 billion, and the 2008 real GDP was $2 billion, what was the rate of economic growth for the country in 2009? (A) 0.6% (B) .3% (C) 4.6% (D) 30% (E) 60%

30% (d)

Which of the following would be included in the calculation of U.S. GDP? (A) A girl mowing her family's yard (B) A student buying a used car (C) A neighbor paying a babysitter with homemade cookies (D) A senior citizen receiving a Social Security check (E) A family buying dinner at a restaurant

A family buying dinner at a restaurant (e)

Which of these is an example of investment, as economists define the term? (A) An accountant purchases stock to earn money for his son's education. (B) An author purchases a piece of art for her home to impress visitors. (C) A grocery store manager buys more bananas to restock the shelves. (D) The government increases spending for food stamp benefits during a recession. (E) A firm purchases equipment to make production more efficient.

A firm purchases equipment to make production more efficient.(e)

To calculate disposable income, which of the following adjustments are made to personal income? (A) Private transfer payments are added and both household taxes and household savings are subtracted. (B) Private transfer payments, household taxes, and savings are subtracted. (C) Household taxes are subtracted and private transfer payments and household savings are added. (D) All personal taxes are subtracted and Social Security payments are added. (E) All personal taxes are subtracted.

All personal taxes are subtracted. (e)

Two-thirds of the U.S. public debt is held by (A) foreign bondholders (B) American bondholders (C) foreign stockholders (D) American stockholders (E) state and local governments

American bondholders(b)

The interest rate is: a. The price of money b. The price borrowers pay lenders c.The reciprocal of the money supply d. The price of GDP e. Both A&B

Both A&B (e)

Financial investment refers to: a. Replacing decaying factories b. Buying as asset with the hope of financial gain c. The difference between an old asset and a new asset d. Opening up a new copper mine

Buying as asset with the hope of financial gain (b)

Which sectors of the economy are most strongly impacted by business cycles? (A) Capital goods and consumer durable goods (B) Services and consumer non-durable goods (C) Public goods and exports (D) Imports and financial instruments (E) Tax revenues and energy

Capital goods and consumer durable goods (a)

Fiscal policy can be difficult to implement for all of the following reasons EXCEPT (A) It takes time for policymakers to recognize a recession is occurring. (B) It takes time for Congress to pass and implement fiscal policy. (C) It takes time for fiscal policy to affect output, employment, or the price level. (D) Fiscal policy decisions can be made (or rejected) for political reasons. (E) Congress prefers to leave fiscal policy decisions to the Federal Reserve.

Congress prefers to leave fiscal policy decisions to the Federal Reserve. (e)

Which of the following situations would be most likely to result in increased consumer spending? (A) A significant drop in stock values reduces personal wealth. (B) Interest rates for loans increase. (C) Income taxes increase. (D) Consumers expect significant price increases in the near future. (E) Consumers believe the economy is moving into recession.

Consumers expect significant price increases in the near future (d)

Consumer spending as a component of aggregate demand increases when I. consumer wealth increases II. consumer borrowing decreases III. consumer expectations about the economy are optimistic IV. personal taxes increase (A) I only (B) II and IV only (C) I and III only (D) II, III, and IV only (E) I, II, III, and IV

I and III only (c)

Trade deficits are caused by I. a nation's economy growing more rapidly than other nations' economies II. depreciation of a nation's currency III. a nation's high inflation rate (A) I only (B) II only (C) I and III only (D) II and III only (E) I, II, and III

I and III only (c)

Which of the following are expansionary fiscal policy actions? I. Reduction in Social Security withholding taxes II. Purchase of government bonds in the open market III. Increase in the corporate tax rate IV. Decrease in the personal tax rate (A) I only (B) II and III only (C) I and IV only (D) II, III, and IV only (E) I, II, III, and IV

I and IV only (c)

When the U.S. dollar appreciates in value, I. imports increase II. exports increase III. foreign investment in U.S. bonds increases (A) I only (B) II only (C) I and III only (D) II and III only (E) I, II, and III

I only (A

The balance of payments includes I. transactions between a nation's residents and the residents of foreign nations II. exports and imports III. international purchases and sales of financial services IV. international purchases and sales of real assets V. interest and dividends paid to or received from foreign sources (A) I and III only (B) I, III, and V only (C) I, III, and IV only (D) I, III, IV, and V only (E) I, II, III, IV, and V

I, II, III, IV, and V (e)

Nations specialize in trade based on their relative levels of: I. natural resources II. labor resources III. capital resources IV. technology (A) I only (B) II and III only (C) III and IV only (D) I, II, and IV only (E) I, II, III, and IV

I, II, III, and IV (e)

Which factors best explain why prices tend to remain inflexible in the short run? I. Consumers prefer stable, predictable prices. II. Many firms face market competition, and rivals will simply match price cuts. III. When prices are volatile, planning by firms and their customers becomes difficult. IV. When prices are volatile, consumers who bought at high prices will feel exploited. (A) I and II only (B) I and III only (C) II and IV only (D) I and IV only (E) I, II, III, and IV

I, II, III, and IV (e)

The current account balance includes I. a nation's exports of goods and services II. a nation's imports of goods and services III. net investment income IV. net financial transfers V. asset purchases and sales (A) I and III only (B) I, III, and V only (C) I, III, and IV only (D) I, II, III, and IV only (E) I, II, III, IV, and V

I, II, III, and IV only (d)

The rate of economic growth of a country underestimates the level of economic well-being of its residents because the growth rate cannot fully account for I. improvements in product quality II. increases in leisure time III. improvements in the quality of life (A) I only (B) III only (C) I and II only (D) II and III only (E) I, II, and III

I, II, and III (e)

Which of the following is a function of money? I. A medium of exchange II. A store of value III. A unit of account (A) I only (B) III only (C) I and II only (D) II and III only (E) I, II, and III

I, II, and III (e)

The components of M1 consist of I. checkable deposits II. travelers' checks III. currency IV. government bonds V. non-checkable savings accounts (A) I only (B) III only (C) IV and V only (D) I, II, and III only (E) I, II, III, and V only

I, II, and III only (d)

The official unemployment rate is not completely accurate because it leaves out people who I. have given up looking for work II. are unemployed but have not filed for unemployment benefits III. are working part-time but want full-time jobs IV. do not have phones (A) I only (B) I and IV only (C) II and III only (D) II, III, and IV only (E) I, III, and IV only

I, III, and IV (e)

. During the Great Recession of 2007-2009, when real interest rates fell to nearly zero, investment spending significantly decreased. Which of the following statements explains this phenomenon? I. The investment demand curve shifted outward. II. Firms expected a lower return on investment in capital. III. Firms were pessimistic about near-term economic strength. IV. Lenders were concerned about the ability of firms to repay the loans. (A) I only (B) II and III only (C) I and IV only (D) II, III, and IV only (E) I, II, III, and IV

II, III, and IV only (d)

Money is created or destroyed whenever I. checks are deposited into checkable accounts at commercial banks II. checks are drawn against checkable accounts at commercial banks III. loans are made by commercial banks that are then converted into checkable deposits IV. loans at commercial banks are repaid by borrowers (A) I and II only (B) II and III only (C) I and IV only (D) II and IV only (E) III and IV only

III and IV only (e)

The economic theory that calls for the use of taxes and government spending to correct economic instability is (A) Classical theory (B) Keynesian theory (C) Monetarist theory (D) Supply-Side theory (E) Marxist theory

Keynesian theory (b)

Which of these topics would be included in the study of macroeconomics? (A) Profit maximization (B) Labor hiring (C) Marginal utility (D) Oligopolistic game theory (E) Long-run economic growth

Long-run economic growth (e)

Myra earns $30 an hour as an accountant. She can type twice as fast as a secretary, who she could hire for $10 per hour. Should Myra do her own typing, or should she hire a secretary? (A) Myra should do her own typing because she has a comparative advantage in typing. (B) Myra should do her own typing because she has an absolute advantage in typing. (C) Myra should do her own typing because she is twice as fast as a secretary. (D) Myra should hire a secretary because she has a comparative advantage in accounting. (E) Myra should hire a secretary because she has an absolute advantage in accounting.

Myra should hire a secretary because she has a comparative advantage in accounting. (D)

What are the four tools the Fed has to conduct monetary policy? a. Bills, notes, bonds, and open-market operations b. Fiscal policy, quantitative easing, open-market operations, and jobs c. Open-market operations, reserve ratio, discount rate, interest on reserves d. Open-market operations, interest on reserves, currency, and debit cards

Open-market operations, reserve ratio, discount rate, interest on reserves (c)

Diversifiable risk refers to: a. There is no risk in a portfolio b. Risk specific to a given investment that can be eliminated with diversification c. Risk specific to a given investment that cannot be eliminated with diversification d. Risk is to high e. Risk is to low

Risk specific to a given investment that can be eliminated with diversification (b)

The majority of spending in the consumer sector is spent for (A) Durable goods, such as furniture (B) Nondurable goods, such as food (C) Construction, such as new homes (D) Services, such as haircuts (E) Used goods, such as used cars

Services, such as haircuts (d)

Three popular forms of financial investment are: a. Homes, factories, capital b. Homes, capital, stocks c. Factories, bonds, stocks d. Stocks, bonds, mutual funds e. Bridges, roads, tunnels

Stocks, bonds, mutual funds (D)

Each of the following statements about the Federal Reserve System is correct EXCEPT (A) Governors are appointed by the President and confirmed by the Senate. (B) The President has power to remove Governors who fail to carry out the President's policy objectives. (C) Each regional Federal Reserve Bank is owned by the private banks in its district. (D) The Board of Governors determines monetary policy for the regional Federal Reserve Banks. (E) Regional Fed Banks serve as "bankers' banks," holding deposits of banks and making loans to banks.

The President has power to remove Governors who fail to carry out the President's policy objectives. (b)

Which factor will increase production possibilities? (A) The entry of women into the labor force (B) The provision of Social Security benefits (C) The prohibition of child labor (D) Increases in college tuition (E) Introduction of safety regulations for industry

The entry of women into the labor force (a)

Why are transfer payments not included in the calculation of GDP? (A) Recipients have not produced any output in return for the payment. (B) The payments generally are made to those with the lowest incomes. (C) Government spending is not included in the calculation of GDP. (D) Transfer payments are intended to promote economic activity. (E) Transfer payments have no impact on the economy.

Transfer payments have no impact on the economy. (e)

The Present value formula is: a. X/(1 + i)t b. X(1 + t) c. (1 + i)X d. B = 1.0 e. A2 + B2 = C2

X/(1 + i)t (a)

Which of the following situations would most likely result in a decrease in the price level and a decrease in real GDP? (A) A decrease in consumer confidence (B) An increase in wages (C) A decrease in interest rates (D) An increase in productivity (E) An increase in exports

a decrease in consumer confidence (A)

the importance of the multiplier effect is the understanding that a change in spending ultimately causes (A) a larger change in GDP than the initial change in spending (B) tax revenues to increase by a multiple of the tax rate (C) the unemployment rate to change in the same direction that spending changed (D) the inflation rate to change in the opposite direction that spending changed (E) GDP to change in the opposite direction that spending changed

a larger change in GDP than the initial change in spending (a)

Which of the following events could lead to a recessionary phase of the business cycle? (A) An increase in worker productivity (B) Firms investing in new technology (C) An increase in consumer confidence (D) A supply shock that reduces the costs of production for firms (E) A reduction in the money supply

a reduction in the money supply

The Fed's functions include all of the following EXCEPT (A) issuing the currency of the United States (B) setting the required reserve ratio (C) accepting deposits of individual businesses and corporations (D) accepting deposits of banks and thrifts in excess of required reserves (E) lending to financial institutions

accepting deposits of individual businesses and corporations (c)

The GDP gap is the difference between (A) actual GDP and potential GDP (B) nominal GDP and real GDP (C) inflation and unemployment (D) the actual unemployment rate and the natural rate of unemployment (E) actual GDP and nominal GDP

actual GDP and potential GDP (a)

If there is a recessionary gap, (A) actual GDP minus full-employment GDP is positive (B) full-employment GDP minus actual GDP is negative (C) actual GDP minus full-employment GDP is negative (D) full-employment GDP is less than actual GDP (E) actual GDP minus full-employment GDP is zero

actual GDP minus full-employment GDP is negative (c)

Poorer countries can achieve higher rates of economic growth than richer countries because poorer countries can (A) adopt existing technologies (B) invest more savings in plant and equipment (C) avoid paying a minimum wage to workers (D) set lower tax rates than richer countries can (E) make significant improvements in health care programs

adopt existing technologies (a)

Each of the following results from a protective tariff on imported wine EXCEPT (A) a higher price for imported wine (B) an increase in government revenues from the tariff on imported wine (C) a short-run increase in demand for domestically-produced wine (D) reduced employment in firms dependent on imported wine (E) an increase in efficiency among firms producing wine

an increase in efficiency among firms producing wine (e)

The production possibilities curve would shift outward in response to all of the following factors EXCEPT (A) a more efficient method to extract natural resources (B) an increase in the number of available workers (C) an increase in the education and training of workers (D) an improvement in technology (E) an increase in the demand for a product

an increase in the demand for a product (e)

If unplanned inventories are suddenly decreasing, the economy faces (A) an inflationary gap with demand-pull inflation (B) an inflationary gap with cost-push inflation (C) a recessionary gap with cyclical unemployment (D) a recessionary gap with frictional unemployment (E) a recessionary gap with structural unemployment

an inflationary gap with demand-pull inflation (a)

Why is the total demand for money a downward sloping line? a. An inverse relationship between interest rates and the quantity of money demanded b. A direct relationship between interest rates and the quantity of money demanded c. A straight line relationship between interest rates and the quantity of money demanded d. A positive relationship between interest rates the quantity of money demanded

an inverse relationship between interest rates and the quantity of money demanded (a)

What is the first step taken by the Fed when initiating expansionary monetary policy? a. Announce a lower target for the discount rate b. Sell bonds c. Buy stocks d. Raise the Fed Funds rate e. Announce a lower target for the Federal Funds rate

announce a lower target for the Federal Funds rate (e)

During recessions, federal government officials find their expansionary fiscal policy actions thwarted by the actions of state and local government officials, who are raising taxes and lowering spending because most state and local governments (A) are required to balance their budgets annually (B) philosophically oppose the use of fiscal policy (C)are more concerned about crowding out (D) are such a small part of the national economy that their policy actions will be ineffective (E) are more concerned about policy impacts on businesses than on consumers

are required to balance their budgets annually (A)

Most international trade is based on differences in (A) trade barriers (B) absolute advantage (C) tax rates (D) currency values (E) comparative advantage

comparative advantage (e)

The largest sector in the expenditure model of GDP is the (A) consumer sector (B) investment sector (C) government sector (D) import sector (E) export sector

consumer sector (a)

The significant decrease in the supply of oil during the 1973-1974 oil crisis caused (A) a positive supply shock (B) demand-pull inflation (C) a positive GDP gap (D) cost-push inflation (E) a decrease in per-unit production costs

cost-push inflation (d)

Full employment rate of unemployment (NRU) is achieved when the economy experiences no (A) frictional unemployment (B) structural unemployment (C) seasonal unemployment (D) cyclical unemployment (E) unemployment

cyclical unemployment (D)

An unexpected increase in inventories would signal firms to (A) hire more workers (B) raise wages (C) decrease output (D) raise product prices (E) increase the cost of production

decrease output (c)

When interest rates increase, asset demand for money: a. Increases because people can earn more money from investing than they can from holding cash b. Decreases because people would choose to buy more products, converting money to transactions demand c. Increases because the demand for bonds would increase d. Decreases because the opportunity cost of holding money as an asset increases e. Increases because the money supply is increasing

decreases because the opportunity cost of holding money as an asset increases (d)

An increase in the discount rate: a. Encourages firms to borrow from commercial banks for investment b. Discourages households from investing in Treasury bonds c. Encourages consumers to borrow from commercial banks for interest-sensitive purchases d. Discourage commercial banks from borrowing from the fed e. Encourages the Fed to borrow from the U.S. Treasury by buying bonds

discourage commercial banks from borrowing from the fed (d)

When a customer deposits $200 cash into his checking account at the bank, the money supply (A) increases by $200 (B) decreases by $200 times the multiplier (C) decreases by $200 (D) increases by $200 times the multiplier (E) does not change

does not change (e)

Effective quotas affect domestic prices, consumption, and government revenue in which of the following ways? A - domestic prices increase, domestic consumption increases, gov revenues increase B - domestic prices decrease, domestic consumption increases, gov revenues decrease C - domestic prices decrease, domestic consumption increases, gov revenues increase D - domestic prices increase, domestic consumption decreases, gov revenues no impact E - domestic prices increase, domestic consumption increases, gov revenues no impact

domestic prices increase, domestic consumption decrease, no impact gov revenues (D)

The kind of currency used in the United States today can be best described as (A) fiat money (B) intrinsic money (C) commodity money (D) state money (E) federal commodity notes

fiat money (a)

Firms will invest in capital as long as the real interest rate is less than or equal to the (A) firm's expected real rate of return on the investment (B) cost of the capital investment (C) increase in the quantity of products sold (D) change in the firm's cost of production (E) total profit of the firm

firm's expected real rate of return on the investment (a)

All of the following factors would increase equilibrium GDP EXCEPT (A) incomes abroad increasing (B) the international value of the dollar depreciating (C) foreign countries increasing trade barriers on U.S. products (D) tax rates decreasing (E) government spending increasing

foreign countries increasing trade barriers on U.S. products (c)

A college graduate searching for their first job is experiencing (A) frictional unemployment (B) structural unemployment (C) seasonal unemployment (D) cyclical unemployment (E) underemployment

frictional unemployment (a)

Crowding-out occurs when (A) a product price is set too low, creating a shortage (B) too many producers are in a market, forcing some firms out of an industry (C) too many firms request government subsidies in the same budget cycle (D) government spending is reduced, so programs are eliminated (E) government borrowing increases interest rates, so firms reduce investment

government borrowing increases interest rates, so firms reduce investment (e

During the Great Recession, the government implemented the stimulus package in an effort to (A) increase aggregate supply (B) increase aggregate demand (C) decrease aggregate supply (D) decrease aggregate demand (E) increase long-run aggregate supply

increase aggregate demand (b)

As a result of the wealth effect, a sudden increase in the value of stock will cause households that hold a significant amount of stock assets to (A) increase consumption and reduce saving (B) increase both consumption and saving (C) reduce consumption and increase saving (D) reduce both consumption and saving (E) hold consumption constant but increase saving

increase consumption and reduce saving (a)

Economists who believe a country faces many unmet social and infrastructure needs would recommend that government officials (A) increase taxes during a recession (B) increase government spending during a recession (C) reduce government spending during a recession (D) reduce taxes during a recession (E) increase government spending during a period of inflation

increase government spending during a recession (B)

Because nominal GDP uses the prices of goods and services in the year they were produced, in the next year nominal GDP will (A) increase if the price level remains constant and there is no increase in real output (B) increase if price level increases are offset by decreases in real output (C) increase if the price level increases while there is no change in real output (D) decrease if price level increases are offset by decreases in real output (E) decrease if the price level remains constant and there is no decrease in real output

increase if the price level increases while there is no change in real output (c)

If a contract worker received an increase in nominal annual salary of 3% and the price level rose in that year by 2%, then that contract worker received a real annual salary (A) increase of 3% (B) increase of 5% (C) increase of less than 3% but greater than 2% (D) decrease of 1% (E) increase of 1%

increase of 1% (e)

. Supply factors that are major determinants of modern economic growth include all of the following EXCEPT (A) increases in the quantity and quality of natural resources (B) increases in government central planning that focus on future growth (C) increases in the quantity and quality of human resources (D) improvement in and adoption of new technology (E) increases in the supply of capital goods

increases in government central planning that focus on future growth (b)

In order to compare production from year to year, real GDP is calculated to remove the distortion of (A) unemployment (B) imports (C) inflation (D) taxes (E) regulation

inflation (c)

Real GDP, rather than nominal GDP, is used to compare changes in national output over time, because real GDP removes the effects of (A) imports (B) unemployment (C) taxes (D) interest (E) inflation

inflation (e)

An increase in each of the following would result in an increase in aggregate demand EXCEPT (A) interest rates (B) exports (C) government spending (D) firms' expected return on investment (E) incomes in countries buying U.S. exports

interest rates (A)

If prices are inflexible and demand declines for any length of time, the most likely impact on inventories, production, unemployment, and gross domestic product would be A- inventories increase, production decreases, unemployment increases, GDP decreases B - inventories increase, production decreases, unemployment constant, GDP decreases C - inventories constant, production constant, unemployment increases, GDP constant D - inventories decrease, production decreases, unemployment decreases, GDP decreases E - inventories decrease, production decreases, unemployment increases, GDP decreases

inventories increase, production decreases, unemployment increases, GDP decreases (A)

the most volatile sector of the economy is the (A) consumer sector (B) investment sector (C) government sector (D) import sector (E) export sector

investment sector (B)

If the expected real rate of return on investment were to increase (A) investment would increase, but real GDP would decrease (B) investment would increase and real GDP would increase (C) investment would remain constant, but real GDP would increase (D) investment would remain constant, but real GDP would decrease (E) investment would increase, but real GDP would remain constant

investment would increase and real GDP would increase

Concerns about the size of the national debt include all of the following EXCEPT (A) interest on the debt consuming a larger portion of the national budget (B) the redistribution of income from those with lower incomes to those with higher incomes (C) lower interest rates as a result of increased government borrowing (D) the increase in the level of foreign-owned debt (E) the impact of crowding-out on future economic growth

lower interest rates as a result of increased government borrowing (c)

Which of the following policies would be appropriate to resolve a recession? a. Increasing the federal funds rate b. The Fed selling bonds to a commercial bank c. Increasing the discount rate d. Raising the prime rate e. Lowering reserve requirements

lowering reserve requirements (e)

Commercial banks create money by (A) printing it (B) making loans (C) selling government securities (D) increasing interest rates (E) increasing the reserve requirement

making loans (b)

If the government decides to use contractionary fiscal policy while having to increase government spending, it must increase taxes by (A) the same amount that it raises spending (B) the full amount of the inflationary GDP gap (C) more than it raises spending (D) less than it raises spending (E) the percentage increase in the inflation rate

more than it raises spending (c)

Most economists support international trade for all of the following reasons EXCEPT (A) trade results in a more efficient allocation of resources (B) production by more efficient producers results in lower product prices (C) the standard of living generally increases in countries that trade (D) nations that trade achieve greater economic and political independence (E) trade provides consumers with a wider variety of products to purchase

nations that trade achieve greater economic and political independence (d)

If a nation has a balance of payments surplus, the net purchase of official reserves is (A) negative because the nation must buy foreign assets resulting in a net outflow of the nation's currency (B) positive because the nation must sell foreign assets resulting in a net inflow of the nation's currency (C) negative because the nation must sell foreign assets resulting in a net inflow of the nation's currency (D) balanced as the nation must equalize the outflow with its inflow of currency (E) balanced as a nation's assets must equal its liabilities

negative because the nation must buy foreign assets resulting in a net outflow of the nation's currency (a)

The gross domestic product, adjusted for depreciation, is (A) net domestic product (B) national income (C) personal income (D) disposable income (E) real gross domestic product

net domestic product (a)

Non-diversifiable risk refers to: a. No possibility of offsetting risk b. Risk specific to a given investment that can be eliminated with diversification c. Risk specific to a given investment that can be eliminated with the rate of return d. Risk is to high e. Both a&b

no possibility of offsetting risk (a)

Modern economic growth occurs when (A) per capita real output increases (B) per capita nominal output increases (C) the increase in real output equals the increase in population (D) the rate of increase in real output accelerates (E) the rate of increase in nominal output accelerates

per capita real output increases (a)

The components of the M1 money supply are distinguished from the additional components of the M2 money supply because M1 money is (A) perfectly liquid (B) printed by the federal government (C) capable of being saved over time (D) distributed by banks (E) backed by its intrinsic value

perfectly liquid (a)

The relationship between risk and average rate of return is: a. Positive b. Stressed c. Inverse d. Straight-line

positive (a)

The largest contributor to productivity growth is (A) the number of workers (B) the labor force participation rate (C) technological advance (D) minimum wage legislation (E) the quantity of capital

technological advance (c)

When the economy is operating at potential output, then the unemployment rate is (A) zero and the economy is operating at the natural rate of unemployment (NRU) (B) positive, it includes the frictional rate of unemployment, and the economy is operating at the natural rate of unemployment (NRU) (C) positive, it includes the frictional rate of unemployment, and the economy is operating above the natural rate of unemployment (NRU) (D) positive, it includes both frictional and structural unemployment, and the economy is operating above the natural rate of unemployment (NRU) (E) positive, it includes both frictional and structural unemployment, and the economy is operating at the natural rate of unemployment (NRU)

positive, it includes both frictional and structural unemployment, and the economy is operating at the natural rate of unemployment (NRU) (e)

All of the following products would be included in the calculation of the U.S. GDP EXCEPT (A) German cars produced in Kentucky (B) haircuts done by Italian-owned firms in the United States (C) printers produced by American-owned companies manufactured and sold in Canada (D) an American firm's purchase of capital equipment produced in Arizona (E) United States government spending on construction of interstate highways

printers produced by American-owned companies manufactured and sold in Canada (c)

Nations impose trade barriers for the purpose of (A) encouraging exports (B) increasing productive efficiency (C) protecting domestic industries (D) reducing government revenues (E) increasing employment in export industries

protecting domestic industries (c)`

The equilibrium point of aggregate supply and aggregate demand determines (A) wages and spending (B) saving and investment (C) taxes and government spending (D) profit and saving (E) real GDP and price level

real GDP and price level (e)

A reduction in personal taxes will cause (A) unemployment to increase (B) the price level to decrease (C) aggregate demand to decrease (D) real GDP to increase (E) the budget deficit to decrease

real GDP to increase (d)

When consumers expect a recession, they generally (A) increase consumption and reduce saving (B) increase both consumption and saving (C) reduce consumption and increase saving (D) reduce both consumption and saving (E) hold consumption constant but increase saving

reduce consumption and increase saving (c)

conomic growth is an important goal because it (A) reduces the amount of public goods government provides (B) results in fewer imports and exports (C) reduces the burden of scarcity among people (D) reduces the inequality in the distribution of incomes in society (E) allows society to focus on the production of goods rather than services

reduces the burden of scarcity among people (c)

Firms within an industry are more likely to increase investment when (A) the cost of capital increases (B) corporate income taxes increase (C) an excess of plant capacity exists (D) future economic projections are pessimistic (E) relevant cost-cutting technological progress occurs

relevant cost-cutting technological progress occurs (e)

The marginal propensity to consume is 0.75 and the economy is operating at full-employment real GDP at $510 billion. If a $20 billion personal consumption increase is matched by an equal increase in personal taxes, long-run real GDP will (A) remain unchanged (B) increase by $20 billion (C) increase by $26.67 billion (D) increase by $60 billion (E) increase by $80 billion

remain unchanged (a)

the main liabilities on the Fed's balance sheet include: a. Stocks, currencies, and commodities b. Reserves, Treasury deposits, Federal Reserve Notes c. Gold and silver d. Iron ore deposits

reserves, Treasury deposits, Federal Reserve Notes (b)

Which of the following is a leakage from the circular market flow? (A) Investment (B) Exports (C) Government spending (D) Consumer spending (E) Saving

saving (e)

According to the consumption function, if income increases by $100, (A) saving increases by $100 (B) saving increases by more than $100 (C) saving increases by less than $100 (D) spending increases by $100 (E) spending increases by more than $100

saving increases by less than $100 (c)

The federal government finances deficits by (A) raising taxes (B) selling exports (C) lowering spending (D) selling bonds (E) selling stock

selling bonds (d)

An increase in government spending increases the real GDP by more than the amount of the initial spending because of the (A) automatic stabilizers (B) spending multiplier (C) trade deficit (D) aggregate supply (E) national debt

spending multiplier (B)

The international value of the United States dollar is determined by (A) the quantity of products imported by the United States (B) the value of the products exported from the United States (C) supply and demand for the dollar on international exchange markets (D) the Federal Reserve System (E) the United Nations

supply and demand for the dollar on international exchange markets (c)

Classical theory relied in part on Say's law, which stated (A) inflation results from too much money chasing too few goods (B) supply creates its own demand (C) in the long run, we're all dead (D) inflation is always and everywhere a monetary phenomenon (E) from each according to his abilities, to each according to his needs

supply creates its own demand (b)

other things equal, if there is an increase in nominal GDP: a. The demand curve for money will decrease b. The interest rate will rise and bond prices will fall c. The interest rate will fall and bond prices rise d. Consumption spending will fall e. Investment spending will fall

the interest rate will rise and bond prices will fall (B)

If German citizens increase investment in U.S. bonds, (A) the supply of euros in the foreign exchange market would fall (B) the international value of the U.S. dollar would fall (C) the euro would depreciate in foreign exchange markets (D) German demand for U.S. dollars would decrease (E) U.S. imports would decrease

the international value of the U.S. dollar would fall (b)

The spending multiplier increases as a result of an increase in (A) the marginal propensity to consume (B) the average propensity to save (C) investment spending (D) government spending (E) the marginal propensity to save

the marginal propensity to consume (a)

According to the real balances effect, consumers buy less at higher price levels because (A) exports become more expensive (B) the purchasing power of assets decreases (C) interest rates increase (D) interest rates decrease (E) fewer exports are purchased

the purchasing power of assets decreases (b)

Gross domestic product is the measure of (A) the value of all final products produced in a country in one year (B) manufactured products produced in a country in one year (C) services produced in a country in one year (D) products produced in a year minus taxes on income and profits (E) negative externalities produced in a country in one year

the value of all final products produced in a country in one year(a)

At equilibrium GDP, (A) unplanned inventories are greater than planned inventories (B) there are no unplanned inventories (C) planned inventories are greater than saving (D) unplanned inventories are increasing (E) planned inventories are zero

there are no unplanned inventories (B)

Why are intermediate goods not included in the calculation of GDP? (A) Consumers cannot use intermediate goods. (B) They are not subject to sales taxes. (C) They are imported. (D) They would be double-counted when the finished product is counted. (E) They are only a single stage in multiple steps of production.

they would be double-counted when the finished product is counted (c)

The GDP price deflator (index) is calculated by dividing (A) the real GDP by the nominal GDP (B) this year's market basket price by the base year's market basket price (C) national income by the inflation rate (D) income-approach GDP by expenditure-approach GDP (E) private sector expenditures by public sector expenditures

this year's market basket price by the base year's market basket price (b)

Because the underground economy and nonmarket transactions are not included in the official calculation of a nation's GDP, the official GDP (A) overestimates actual production in the economy (B) should not be used as an indicator of production in the economy (C) underestimates actual production in the economy (D) accurately records the well-being of a nation's residents (E) overestimates incomes in the economy

underestimates actual production in the economy (c)

A fractional reserve system requires banks to keep a fraction of demand deposits in (A) government securities (B) loans to customers (C) vault cash or deposits at a Federal Reserve Bank (D) collateral assets, such as home mortgages (E) savings accounts or time deposits

vault cash or deposits at a Federal Reserve Bank (c)

The long-run aggregate supply curve is (A) horizontal because in the long-run, price levels are constant (B) upward-sloping but not vertical, as both input and output prices are flexible (C) upward-sloping but not vertical, as output prices are flexible and input prices are inflexible (D) vertical at full-employment output, as both input and output prices are flexible (E) vertical at full-employment output, as both input and output prices are inflexible

vertical at full-employment output, as both input and output prices are flexible (d)

The largest sector of the income approach model of GDP is (A) taxes (B) corporate profits and proprietors' income (C) interest (D) rents (E) wages

wages (e)

Aggregate supply increases as the result of an increase in (A) the cost of production (B) worker productivity (C) business taxes (D) government regulation of business (E) the price of oil

worker productivity (b)