ECON 2105 Final Exam

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1. A. $100; $200 B. -$50; -$200 C. $0; $0 D. $50; $150

A. $100; $200

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____. A. $30; fall; $750 B. $3; fall; $75 C. $30; rise; $750 D. $3; rise; $750

A. $30; fall; $750

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession. A. False B. True

B. True

The catch-up effect is the idea that up to a certain point, developing countries can achieve greater productivity for each unit of capital invested because they have the advantage of using technologies already developed by other countries. A. False B. True

B. True

Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered. A. False B. True

B. True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. A. False B. True

B. True

Which of these would likely cause the market for loanable funds to change as shown in the following figure? A. increased regulations placed on businesses B. a decrease in average incomes C. improved business expectations about future profits D. increased incentives for individuals to save

B. a decrease in average incomes

Determine if the statements are true or false and place them in the appropriate bin. True or False: A. When price ceilings are imposed, consumers pay lower explicit prices but often face higher costs in terms of waiting in line for goods and services B. Price Ceilings result in a reduction in mutually beneficial exchanges C. A problem with price ceilings is that they lead to surpluses D. Though they may face higher prices, consumers usually see an increase in product quality when price ceilings are imposed E. Price ceilings result in resources being allocated to activities with the highest possible value

True: A,B False: C, D, E

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market? A. 4.4% and 4.0%, respectively B. 4.4% and 10%, respectively C. 4.0% and 4.4%, respectively D. 44% and 4.4%, respectively

A. 4.4% and 4.0%, respectively

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield? A. 5.26% B. 9.5% C. 95% D. 1.05%

A. 5.26%

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? A. Esteban's average propensity to consume increased. B. Esteban's average propensity to consume decreased. C. Esteban's average propensity to consume cannot be calculated. D. Esteban's average propensity to consume stayed the same.

A. Esteban's average propensity to consume increased.

In the TED talk that we watched today in the class, what was the name of the Nobel prize winner economist? A. Esther Duflo B. David Card C. John Keynes D. Abhijeet Banerjee

A. Esther Duflo

Economic models must fully reflect reality. A. False B. True

A. False

On average, the United States falls into recession about every 10 years. A. False B. True

A. False

The consumer price index measures private goods as well as public goods. A. False B. True

A. False

The government can always successfully intervene in the case of market failure. A. False B. True

A. False

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. A. Increasing; increasing; lowering B. Reducing; increasing; raising C. Increasing; reducing; raising D. Reducing; increasing; lowering

A. Increasing; increasing; lowering

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? A. Output per worker grows by 10% while the labor force grows by 10%. B. Output per worker grows by 11% while the labor force remains constant. C. Output per worker remains constant while the labor force grows by 11%. D. Output per worker grows by 4% while the labor force grows by 12%.

A. Output per worker grows by 10% while the labor force grows by 10%.

Which change is likely to increase wages the MOST in a country? A. The capital-to-labor ratio rises by 2%. B. The labor force grows by 2%. C. Drainage of swampy land allows 2% more land to be farmed. D. Since the growth rate is 2% in all listed situations, wages would increase equally in all of them.

A. The capital-to-labor ratio rises by 2%.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the price of oil rises significantly? A. The economy will move from point C to A to B. B. The economy will move from point D to C to B. C. The economy will move from point C to E to B. D. The economy will move from point D to C to E.

A. The economy will move from point C to A to B.

A rise in real GDP is associated with increased employment. A. True B. False

A. True

Knowing the marginal propensity to consume makes it possible to calculate the marginal propensity to save. A. True B. False

A. True

The determinants of aggregate demand include the components of GDP: consumption, investment, government spending, and net exports. A. True B. False

A. True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. A. True B. False

A. True

Total factor productivity captures the factors that influence the overall effectiveness of inputs. A. True B. False

A. True

Which of these is NOT a financial intermediary in the market for loanable funds? A. a school B. an insurance company C. mutual funds D. credit unions

A. a school

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? A. an increase in demand and a decrease in supply B. a decrease in demand and an increase in supply C. decreases in both demand and supply D. increases in both demand and supply

A. an increase in demand and a decrease in supply

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect. A. crowding-out B. boomerang C. ricochet D. opposite expansionary

A. crowding-out

Which event will shift the aggregate demand curve to the right? A. decrease in taxes B. increase in household debt C. decrease in military spending D. catastrophic hurricane hits the northeastern United States

A. decrease in taxes

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is A. directly increased by $4 million and has the potential to be increased by another $12 million. B. not directly affected but has the potential to be increased by a total of $12 million. C. directly reduced by $4 million and has the potential to be reduced by another $12 million. D. directly increased by $4 million and has the potential to be increased by another $8 million.

A. directly increased by $4 million and has the potential to be increased by another $12 million.

(Figure: Tanks and Health Care) Which point in the figure is obtainable but NOT efficient? A. f B. b C. a D. g

A. f

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? A. if a lack of confidence in the financial system causes savers to withdraw money from banks B. when record amounts of student loans are paid back before interest rates rise C. when a stock market crash causes people to sell their stocks and purchase bank CDs instead D. when throngs of borrowers apply for loans as the housing market picks up

A. if a lack of confidence in the financial system causes savers to withdraw money from banks

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? A. $11 million B. $60 million C. $50 million D. $275 million

B. $60 million

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____. A. -$120; 0.4; -0.7 B. -$80; 0.6; 1.27 C. $300; 0.4; 0.5 D. $80; 0.6; -0.27

B. -$80; 0.6; 1.27

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? A. 7 years B. 14 years C. 28 years D. 21 years

B. 14 years

(Figure: Effects of Policy Shifts) If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____. A. AD1; AD0; b; a B. AD0; AD1; a; b C. AD1; AD0; a; b D. AD0; AD1; b; a

B. AD0; AD1; a; b

_____ unemployment is the result of changes in the business cycle. A. Structural B. Cyclical C. Seasonal D. Frictional

B. Cyclical

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run. A. True B. False

B. False

Economists wish to eliminate external benefits because they prevent the market from operating efficiently. A. True B. False

B. False

External costs increase deadweight loss, while external benefits reduce deadweight loss. A. True B. False

B. False

If bad weather persists in a summer resort town, we can expect demand for hotels to shift left and the equilibrium price to rise. A. True B. False

B. False

The consumer price index measures private goods as well as public goods. A. True B. False

B. False

Net domestic product measures A. GDP plus income payments from the rest of the world minus income payments to the rest of the world. B. GDP minus depreciation. C. C + I + G + (X - M). D. national income plus income payments from the rest of the world minus income payments to the rest of the world.

B. GDP minus depreciation.

Which statement is an example of an open market operation? A. The central bank lowers the interest rate from 5% to 3% on the loans it gives to commercial banks. B. The central bank sells bonds to the public via the commercial banking system. C. Naftali runs a bazaar in Baghdad selling odds and ends type trinkets to tourists. D. A bank loans out all but 5% of its funds to hold in storage.

B. The central bank sells bonds to the public via the commercial banking system.

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause. A. False B. True

B. True

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase. A. False B. True

B. True

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could A. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs. B. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. C. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. D. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

B. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. A. aggregate spending; larger B. disposable income; smaller C. disposable income; larger D. aggregate spending; smaller

B. disposable income; smaller

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $100 B. inflationary; decrease; $100 C. inflationary; decrease; $250 D. recessionary; increase; $250

B. inflationary; decrease; $100

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. A. decision B. information C. recognition D. implementation

B. information

Cost-push inflation occurs because of a shift to the A. left of the aggregate demand curve. B. left of the short-run aggregate supply curve. C. right of the aggregate demand curve. D. right of the short-run aggregate supply curve.

B. left of the short-run aggregate supply curve.

Bonds are considered to be _____ than stocks because _____. A. riskier; stockholders are less affected by a firm's bankruptcy B. less risky; bondholders are less affected by a firm's bankruptcy C. riskier; stockholders earn dividends and bondholders do not D. less risky; bondholders earn dividends and stockholders do not

B. less risky; bondholders are less affected by a firm's bankruptcy

A bond's price and yield A. are usually equal in value. B. move in opposite directions. C. must sum up to 1,000. D. move in the same direction.

B. move in opposite directions.

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. inflationary; decrease; $250 B. recessionary; increase; $100 C. inflationary; decrease; $100 D. recessionary; increase; $250

B. recessionary; increase; $100

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. A. A. The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes. B. workers and suppliers adjusting their expectations to higher price levels. C. decreased consumer spending brought about by increased government spending and/or lower taxes. D. workers and suppliers adjusting their expectations to lower price levels.

B. workers and suppliers adjusting their expectations to higher price levels.

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. A. $15,000; $4,000 B. $25,000; $3,000 C. $12,000; $2,000 D. $30,000; $5,000

C. $12,000; $2,000

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is A. 60%. B. 10%. C. 17%. D. 20%.

C. 17%.

(Figure: Simple Keynesian Model) In the figure, suppose investment has increased from AE = C + I0 to AE = C + I1. The multiplier equals A. 5. B. 0.4. C. 2.5. D. 0.6.

C. 2.5.

(Table) According to the table, what is the labor force of this economy? Population: 500 Number Employed: 300 Number Unemployed: 50 A. 500 B. 50 C. 350 D. 300

C. 350

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. A. 25; greater than 25 B. 25; less than 25 C. 4; equal to or less than 4 D. 250; greater than 250

C. 4; equal to or less than 4

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. A. 186%; is not B. 0.002%; is not C. 53.76%; is D. 20%; is

C. 53.76%; is

Last year, the consumer price index was 115 while the consumer price index for this year is 125. The rate of inflation is A. 8%. B. 9.2%. C. 8.7%. D. 10.8%.

C. 8.7%

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? A. Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. B. Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output. C. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. D. Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices.

C. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

Which statement is NOT correct? A. Discouraged workers are considered part of the leisure class and not part of the labor force. B. Discouraged workers have stopped actively seeking work. C. Discouraged workers are considered underemployed. D. Discouraged workers are not classified as unemployed.

C. Discouraged workers are considered underemployed.

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? A. Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account. B. IRA contributions are typically made with pretax income while 401(k) contributions are made with post tax income. C. Employers often match 401(k) contributions, but they do not match IRA contributions. D. IRAs typically earn interest, but 401(k) accounts typically earn dividends.

C. Employers often match 401(k) contributions, but they do not match IRA contributions.

(Table) According to the table, which country will have the lowest real GDP per capita in 23.67 years? Ecoland: $10,000 12% Macia: $22,000 6% Nomia: $28,000 3% Coland: $30,000 3% A. Coland B. Ecoland C. Nomia D. Macia

C. Nomia

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? A. The CPI does not include new products. B. The CPI assumes that people do not substitute goods. C. The CPI does not deal with producer prices. D. The CPI does not account for quality changes.

C. The CPI does not deal with producer prices.

In which situation is a country LEAST likely to be producing on its production possibilities curve? A. The average education level is of the fourth grade. B. The land is dry and has low productivity in farming. C. There are legal disputes over the ownership of 15% of the factory buildings in the country. D. There are large legal penalties for breaking a contract.

C. There are legal disputes over the ownership of 15% of the factory buildings in the country.

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) A. a beginning deposit of $1,010, earning 3% per year B. a beginning deposit of $950, earning 5% per year C. a beginning deposit of $930, earning 8% per year D. a beginning deposit of $1,000, earning 4% per year

C. a beginning deposit of $930, earning 8% per year

Which of these would NOT shift the investment demand schedule? A. a change in operating costs B. a change in technology C. a change in interest rates D. a change in expectations

C. a change in interest rates

Which event would NOT be included in total factor productivity measurements? A. an earthquake that disrupts a country's production for several weeks B. a severe military conflict that restricts daily movements of labor and capital C. a large investment in physical capital that makes labor more productive D. an unexpected breakthrough in GPS technology that enhances transportation

C. a large investment in physical capital that makes labor more productive

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run? A. cost-push inflation B. an increase in unemployment C. demand-pull inflation D. a decline in tax revenue

C. demand-pull inflation

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing A. deflation. B. a drop in its price level. C. disinflation. D. hyperinflation.

C. disinflation.

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to A. rise by $800. B. by $800. C. fall by $600. D. remain the same.

C. fall by $600.

A decrease in demand causes the equilibrium price to _____ and the equilibrium quantity to _____. A. rise; rise B. rise; fall C. fall; fall D. fall; rise

C. fall; fall

The _____ is the change in consumption associated with a change in income. A. average propensity to consume B. marginal propensity to save C. marginal propensity to consume D. average propensity to save

C. marginal propensity to consume

A production function says output per worker equals A × f(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living. A. increases in capital B. more human capital C. more people D. more natural resources

C. more people

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions. A. positively related; sales price; coupon payment B. negatively related; sales price; coupon payment C. negatively related; coupon payment; sales price D. positively related; coupon payment; sales price

C. negatively related; coupon payment; sales price

When Main Street Bank buys new automatic teller machines, the quantity of _____ in the economy increases. A. land and natural resources B. labor C. physical capital D. entrepreneurial ability, technology, and ideas

C. physical capital

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $250 B. inflationary; decrease; $100 C. recessionary; increase; $100 D. inflationary; decrease; $250

C. recessionary; increase; $100

Order the following saving mechanism in descending order of liquidity. A. Checking Account B. Savings Account C. A House D. Cash in your Pocket E. Corporate Bond

D, A, B, E, C

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals A. 0.4. B. 0.6. C. 0.5. D. 0.2.

D. 0.2.

In the following PPF, between which two points would long-run growth be represented? A. A to C B. A to B C. B to C D. C to D

D. C to D

Which statement is NOT correct? A. Discouraged workers are not classified as unemployed. B. Discouraged workers have stopped actively seeking work. C. Discouraged workers are considered part of the leisure class and not part of the labor force. D. Discouraged workers are considered underemployed.

D. Discouraged workers are considered underemployed.

Which statement(s) is/are TRUE regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings. II. For the paradox of thrift to occur, investment must be positively related to income. III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. A. I and II only B. I, II, and III C. II and III only D. II only

D. II only

Which statement regarding discretionary and mandatory spending is correct? A. Mandatory spending programs include national defense, income security, and education. B. Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. C. Discretionary spending is authorized by permanent laws. D. Mandatory spending may act as an automatic stabilizing force in the macro economy.

D. Mandatory spending may act as an automatic stabilizing force in the macro economy.

If the economy shown in the figure begins on AD1 and SRAS1, what will happen in the short run and long run if the government begins a sustained period of increased spending? A. The economy moves from point C to A to B. B. The economy moves from point D to C to E. C. The economy moves from point D to C to A. D. The economy moves from point C to E to B.

D. The economy moves from point C to E to B.

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which statement is TRUE? A. The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes. B. The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes. C. The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels. D. The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

D. The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? A. The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. B. The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. C. The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. D. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

D. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

The demand for loanable funds is downward sloping because A. as interest rates fall, the value of the money supply drops. B. higher interest rates are equivalent to higher returns on business projects. C. higher interest rates encourage firms to borrow more. D. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

D. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

Which list represents monetary policy actions that are consistent with one another? A. sell government bonds, lower reserve requirements, raise the discount rate B. sell government bonds, raise reserve requirements, lower the discount rate C. buy government bonds, raise reserve requirements, raise the discount rate D. buy government bonds, lower reserve requirements, lower the discount rate

D. buy government bonds, lower reserve requirements, lower the discount rate

What are the determinants of short-run aggregate supply? A. changes in input prices, taxes, and technology B. changes in education, taxes, and business and inflationary expectations C. changes in government spending, taxes, and business and inflationary expectations D. changes in input prices, taxes, and business and inflationary expectations

D. changes in input prices, taxes, and business and inflationary expectations

A passive job search A. includes contacting a private employment agency. B. means participating in productive activities, like sending out résumés. C. entails the scheduling of job interviews. D. entails merely talking to friends about jobs.

D. entails merely talking to friends about jobs.

Unanticipated _____ is detrimental to economic growth. A. inflation B. deflation C. Neither inflation nor deflation is detrimental to economic growth. D. inflation or deflation

D. inflation or deflation

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income. A. less; less; less B. more; less; less C. less; more; more D. more; more; more

D. more; more; more

One argument against using taxation to pay off the public debt is that it will redistribute wealth from A. richer bondholders to poorer people who do not own bonds. B. poorer bondholders to richer people who do not own bonds. C. richer bondholders to richer people who do not own bonds. D. poorer people who do not own bonds to richer bondholders.

D. poorer people who do not own bonds to richer bondholders.

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? A. increase spending by $10 billion B. increase spending by $25 billion C. reduce spending by $100 billion D. reduce spending by $25 billion

D. reduce spending by $25 billion

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. A. left; increase B. right; decrease C. left; decrease D. right; increase

D. right; increase

If consumers believe that an item will not be available in the future, then demand will shift _____ and the equilibrium quantity will _____. A. right; fall B. left; fall C. left; rise D. right; rise

D. right; rise

A breakthrough in solar energy research that halves the cost of electricity will A. shift the aggregate supply curve to the left. B. cause the aggregate supply curve to become vertical. C. have no effect on the aggregate supply curve. D. shift the aggregate supply curve to the right.

D. shift the aggregate supply curve to the right.

Move each of the labels to its corresponding transaction or transactions in the diagram. Savers to Banks: Banks to Borrowers: Borrowers to Banks: Banks to Savers: A. Withdrawals B. Deposits C. Interest Payments on Deposits D. Loans E. Loan Repayments

Savers to Banks: B Banks to Borrowers: D Borrowers to Banks: E Banks to Savers: A, C

Distinguish the true statements from the false statements. A. Market failure occurs when either external costs or benefits are present B. Market failure is when free markets provide a suboptimal amount of goods and services C. Government sometimes intervenes when market failure occurs D. Market failure occurs when external costs are preset but not when external benefits are present E. Market failure occurs when external benefits are present but not when external costs are present F. Market failure can only occur in the presence of external costs.

True: A,B,C False: D,E,F

If Kelly transfers $500 from her savings account to her checking account, M1 will __________ and M2 will ____________

increase; remain the same