Economics

Use the following graph of the demand for coffee: Refer to the above diagram of three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D3?

A decrease in the price of tea

The Federal backing for money in the United States comes from:

Controlling the money supply in order to keep the value of money relatively stable over time

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?

Crowding-out effect.

Which of the following is the main problem with the barter system of exchange?

It requires a coincidence of wants

In Year 1, the price level was 120 and the average nominal income was $30,000. In Year 2, the price level was 125 and the average nominal level of income was $32,000. What happened to real income from Year 1 to Year 2?

It rose by $600

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information. Which individual is structurally unemployed?

Jeanette

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

Lower expected rates of return on investment.

The following are examples of final goods in national income accounting, except: Tractor purchased by a construction company Lumber and steel beams purchased by a construction company Laptop computer purchased by an executive for personal use Desktop computer purchased by an executive for business use

Lumber and steel beams purchased by a construction company

If depositors move $50 billion from money market deposit accounts into checkable deposits, then:

M1 increases, M2 stays the same, and the system becomes more liquid.

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information. Which individual is frictionally unemployed?

Mollie

The total amount of debt owed by the Federal government is represented by the total value of the outstanding:

U.S. government securities

General sources of shocks that can cause business cycles include the following, except:

Unemployment jumps and production drops

The opportunity cost of constructing a new public highway is the:

Value of other goods and services that are sacrificed in order to construct the new highway

Which of the following is incorrect? As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level. When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending. As the price level falls, the interest rate declines, and interest-rate-sensitive spending increases.

When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

If you are estimating your total expenses for school next semester, you are using money primarily as:

a unit of account.

Ceteris paribus, a decrease in the price level leads to:

an increase in the quantity-demanded of real GDP.

According to the law of supply, an increase in the price of gasoline leads to:

an increase in the quantity-supplied of gasoline, ceteris paribus.

Ceteris paribus, an increase in the price level leads to:

an increase in the quantity-supplied of real GDP.

Bank panics:

are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently.

In the U.S. banking system, depository institutions (banks) may hold required reserves:

as either vault cash or on deposit at a Federal Reserve Bank.

The increase in unemployment compensation that occurs when the economy contracts and does not require congressional action is an example of:

automatic, expansionary fiscal policy.

Refer to the diagram. The movement down the production possibilities curve from point A to point E suggests that the production of:

both bicycles and computers is subject to increasing opportunity costs.

The amount by which government expenditures exceed tax revenues during a particular year is the:

budget deficit.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

Refer to the diagram for the federal funds market. If the Fed wants to lower the federal funds rate from if1 to if2, it should:

buy bonds from the banks and the public.

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for:

buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Suppose Congress increases taxes and decreases government spending. This is an example of ____________ fiscal policy, which would result in shifting the ____________ curve to the ____________.

contractionary; aggregate demand; left

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

coordination problem under central planning.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

cyclically adjusted deficit.

The level of aggregate expenditures in the private closed economy is determined by the:

expenditures of consumers and businesses.

If the actual unemployment rate is less than the natural rate of unemployment, a(n):

inflationary gap exists and there is a shortage of labor and other resources.

Monetary policy may be ineffective if:

investment and consumer spending are not sensitive to changes in short-term interest rates.

Refer to the diagram. The combination of computers and bicycles shown by point F:

is attainable but implies that the economy is not using all its resources.

A nation's gross domestic product (GDP):

is the dollar value of all final output produced within the borders of the nation during a specific period of time.

The use of money contributes to economic efficiency because:

it promotes specialization by overcoming the problems with barter.

If the Fed were to reduce the legal reserve ratio, we would expect:

lower interest rates, an expanded GDP, and a higher rate of inflation.

The liquidity trap refers to the situation where:

the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand.

If intermediate goods and services were included in GDP:

the GDP would be overstated.

A recessionary expenditure gap is

the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

In the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that:

the opportunity cost of shelter is greater in Alpha than it is in Beta.

Refer to the figure. The consumption schedule indicates that:

up to a point consumption exceeds income but then falls below income.

If an unintended increase in business inventories occurs:

we can expect businesses to lower the level of production.

Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:

will be 4 units of bicycles.

If aggregate demand increases and aggregate supply decreases, the price level:

will increase, but real output may increase, decrease, or remain unchanged.

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in taxes is needed to achieve full employment?

A decrease of $24 billion.

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Decrease and transfer payments increase

Ceteris paribus, an increase in the real interest rate will result in a(n):

Decrease in the quantity-demanded of investment.

National income is the sum of employee compensation, profits, and the following items, except: Depreciation or consumption of fixed capital Taxes on production and imports Interest Rent

Depreciation or consumption of fixed capital

In the aggregate expenditures model, we note that an increase in government purchases G and an increase in lump-sum taxes T of the same amount will each individually have:

Different effects on GDP, with the change in G having a larger impact than the change in T

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Expansion.

Refer to the diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be:

F and C, respectively.

Refer to the diagram. If aggregate supply is AS1 and aggregate demand is AD0, then:

F represents a price level that would result in a shortage of real output of AC.

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information. Which individual is cyclically unemployed?

George

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity: Land 4 2 4 2 Labor 3 1 2 4 Capital 3 5 2 3 Entrepreneurial Ability 2 3 1 1 Refer to the data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

#2 and #4.

(The following national income data are in billions of dollars.) consumption of fixed capital 25 government purchases 315 US imports 260 personal taxes 45 Transfer payments 247 US Exports 249 Personal consumption expenditures 475 Net Foreign Factor Income 5 Gross Private Domestic Investment 300 Taxes on production and imports 245 UNdistributed corporate profits 60 social security contributions 240 corporate income taxes 65 Statistical Discrpancy 40 Refer to the above data. Gross domestic product in this economy is:

$1,079 billion

A commercial bank has checkable-deposit liabilities of $50,000 and a required-reserve ratio of 20 percent. What is the amount of required reserves?

$10,000

Refer to the information. Money supply M1 for this economy is: MMMFBHBB 100 MMMFBHBI 220 Currency in Banks 10 Currency in Ciculation 60 SD, IMMDA 50 L-d (100,00 or more) Time Deposits 180 S-D Time deposits 80 Checkable deposits 70

$130.

Answer the question on the basis of the following national income data. All figures are in billions of dollars. Personal Taxes 23 net private domestic investment 33 net exports 6 national income 278 us expots 20 gross private domestic investment 56 disposable income 220 taxes on production and imports 32 undisstributed corporate profits 15 proprietors income 45 net foreign factors income 0 statistical discrepancy 0 Refer to the data. U.S. imports are:

$14.

The balance sheet below is for the commercial banking system. Assume the required reserve ratio is 20 percent. Refer to the above information. The maximum amount by which the commercial banking system can expand the supply of money by lending is:

$200,000

The following information is for a private closed economy: 100 100 0 80 200 160 40 80 300 22080 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80 Refer to the information. The equilibrium level of GDP is:

$300.

Answer the question on the basis of the following data. All figures are in billions of dollars. Personal taxes 40 social security contributions 15 taxes on production and imports 20 corporate income taxes 40 transfer payments 22 us exports 24 undistributed corporate profits 35 government purchases 90 gross private domestic invesetment 75 US imports 22 Personal consumption expenditures 250 consumption of fixed capital 25 net foreign factor income 10 statistical discrepancy 0 Refer to the data. NDP is:

$392.

Refer to the diagram. If this is a competitive market, price and quantity will move toward:

$40 and 150, respectively.

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income.Refer to the given data. At an $600 level of disposable income, the level of saving is:

$40.

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars: reserves 60 checkable deposits 150 loans 100 stock shares 135 securities 25 property 100 Refer to the above data. The commercial banking system has excess reserves of:

$42 billion

Refer to the table above. The size of the M2 money supply is: Checkable deposits 597 Small time deposits 818 Currency 63.9 MMMFHBB 1045 SD, IMMDA 2866 MMMFHBI 979

$5,899 billion

A commercial bank has required reserves of $75 million and the reserve ratio is 15 percent. If the bank is fully loaned up, what is the maximum total checkable-deposits the bank can legally support?

$500 million

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Ca=25 +.75(y-t) Ig=Ig0=50 Xn=Xn0=10 G=G0=70 T=T0=30 Refer to the information. The equilibrium level of GDP for this economy is:

$530.

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income.Refer to the given data. At an $800 level of disposable income, the level of consumption is:

$740.

Answer the question on the basis of the following data. All figures are in billions of dollars. gross investment 18 national income 100 net exports 2 personal income 85 personal consumption 70 saving 5 government purchases 20 net domestic product 105 statistical discrepancy 0 Refer to the data. Disposable income is:

$75.

Which of the following would reduce GDP by the greatest amount?

A $20 billion decrease in government spending.

Which of the following statements regarding Monetarists is true? (a) they believe the most important determinant of inflation in U.S. history has been decisions by the Fed to allow the money supply to grow too quickly. (b) they advocate expansionary fiscal policy to reduce inflation. (c) they believe the Fed should follow a policy of stable and predictable expansion of the money supply. (d) both (a) & (c).

(d) both (a) & (c).

In the above example, the marginal propensity to consume is: 0 200 400 600 800 1000

0.75

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is:

12.5 percent.

With no inflation, a bank would be willing to lend a business firm $10 million at an annual interest rate of 8%. But if the rate of inflation was anticipated to be 5%, the bank would most likely charge the firm an annual interest rate of:

13 percent

A bond with no expiration date has a face value of $900 and pays a fixed annual interest payment of $150. The bond's annual interest yield approximately equals:

16.7 percent

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was:

20% higher than the average price in the base period 1982-84

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the information. The administrative lag of fiscal policy is reflected in events:

3 and 4.

Consider the supply and demand curves depicted in the diagram above. If the government imposed a price ceiling of $15, then buyers will be intending to buy ___, but they will be able to legally buy ____.

36 units; 24 units

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. same as above Refer to the information. The spending multiplier for this economy is:

4.

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately:

5.9 percent

In the above example, autonomous consumption is: 0 8 80 80 160 152 240 224 320 296 400 398

8

If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be:

8 percent

Answer the question on the basis of the following table: 2 220 300 460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Refer to the given table. The equilibrium interest rate is:

8 percent.

Which of the diagrams best portrays the effects of an increase in resource productivity?

A.

Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

AD0

In a competitive market illustrated by the diagram above, for a price floor to be effective and alter the market situation, it must be set:

Above $15

One essential trade-off involving business risk which the market system provides is reflected in which of the following?

Access to the firm's profits and gains are open only to those who take on the business risk of the firm

Which of the following is correct?

Actual reserves minus required reserves equal excess reserves.

Which of the following best illustrates the circular flow model in action? Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers. All of these answers illustrate the workings of the circular flow model. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner. Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store.

All of these answers illustrate the workings of the circular flow model.

Which of the following is a correct statement? Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events. Because economics is concerned with questions of "ought," it is a branch of applied ethics and not scientific. Economics is as scientific as are physics and chemistry because economic laws are as quantitatively precise as the laws of physics or chemistry. Economic concepts or laws that are valid during depression are necessarily valid during prosperity.

Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.

Use the following graph of the demand for coffee: Refer to the above diagram of three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D2?

An increase in consumer incomes

Refer to the graph above. Which of the following factors will shift AD1 to AD2?

An increase in national incomes abroad

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

Refer to the diagram above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S3?

An increase in the price of soybeans

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in government spending is needed to achieve full employment?

An increase of $15 billion.

As disposable income decreases, consumption:

And saving both decrease

Which of the diagrams best portrays the effects of a decrease in the availability of key natural resources?

B

What do investment and government expenditures have in common?

Both represent injections to the circular flow.

Brinley says that "gas prices are rising because there aren't enough oil refineries." Katie argues that "gas prices are rising because of the growing demand for gasoline from China and India." We can conclude that:

Both statements are positive.

Which of the diagrams best portrays an improvement in expected rates of return on investment?

C

In the example above, the algebraic form of this consumption function is: 0 100 500 400 1000 700 1500 1000 2000 1300

C = 100 + 0.6Yd

Of the following countries, which one best exhibits the characteristics of a market economy?

Canada.

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

Capital goods.

Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays the effects of declines in the incomes of U.S. trading partners?

D.

Refer to the four graphs above. Select the graph above that best shows the changes in demand and supply in the market specified in the following situation: In the market for music CDs sold in stores, if more consumers switch to music-downloads from the Internet, and the cost of making music CDs decreases because of technological improvement in production.

Graph C

Refer to the four graphs above. Select the graph that best shows the changes in demand and supply in the market specified in the following situation: In the market for beef, if a new diet fad favoring beef consumption becomes hugely popular, while cattle producers see steeply rising costs of cattle feed.

Graph D

The government bail-out of large "too-big-to-fail" financial institutions creates the problem of moral hazard, which means that these large firms will:

Have an incentive to make highly risky investments

Which question is an illustration of a macroeconomic question?

How will the government's budget deficit be affected by public infrastructure projects?

A change in borrowing would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

In opposite directions; in the same direction

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer.2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information. Which individual(s) would be included in the calculation of the natural unemployment rate?

Mollie and Jeanette

Use the following graph of the demand for coffee: Refer to the above diagram of three demand curves for coffee. An increase in the price of coffee, other factors constant, would cause a:

Movement from point b to point a

What is the difference between national income and personal income?

National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned.

Refer to the diagram above. The phases of the business cycle from points A to D are, respectively:

Peak, recession, trough, expansion

Refer to the diagram above, which shows three supply curves for corn. A movement from point a to point b is caused by a change in the:

Price of corn in the market

The aggregate expenditures model is built upon which of the following assumptions?

Prices are fixed.

Which of the following is a fundamental characteristic of the market system?

Property rights.

The basic purpose of imposing legal reserve requirements on commercial banks is to:

Provide a device through which the credit-creating activities of banks can be controlled

Which of the following is not a responsibility of the Fed?

Provide loans to consumers and small businesses.

Which of the following would increase measured U.S. GDP for 2015? Purchases of Japanese-made computer chips by American manufacturers in 2015. Purchases of American beer by Canadian consumers in 2015. The value of services provided by volunteer workers in 2015. The value of American cars produced in 2014 and sold in 2015.

Purchases of American beer by Canadian consumers in 2015.

Which phase of the business cycle would be most closely associated with an economic contraction?

Recession

Requiring banks to use less leveraging is equivalent to:

Requiring a higher level of bank net worth

Which of the following actions by the Fed would cause the money supply to decrease?

Sales of government bonds to the public.

Refer to the above diagram for the milk market. If the price were $2.00 per gallon, then there would be a:

Surplus of 10 million gallons

Economic analysis assumes "purposeful behavior", which means that people will pursue decisions or actions:

That will increase their well-being

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?

The child-care services provided by stay-at-home parents.

Which situation would most likely cause a nation's production possibilities curve to shift inward?

The destruction caused by bombing and warfare in a losing military conflict

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2?

The development of a more effective insecticide against corn rootworm

In a competitive market illustrated by the diagram above, a price ceiling of $25 per unit will result in:

The market stays at equilibrium price of $15

When bankers hold excess reserves:

The money-creating potential of the banking system decreases

Which of the following is considered a firm's "factor of production"?

The office building occupied by the firm

When inflation occurs:

The purchasing power of money decreases

The most basic premise of the aggregate expenditures model is that:

The total output produced in the economy depends directly on the level of total spending

Competition is more likely to exist when:

There is easy entry into and exit out of industries

According to the law of demand, an increase in the price of gasoline leads to:

a decrease in the quantity-demanded of gasoline, ceteris paribus.

In the U.S. banking system, banks are required to hold:

a fraction of total deposits on reserve.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:

a medium of exchange.

If the economy is initially in equilibrium at full employment real GDP (QN), and a stock market crash reduces household wealth and lowers investor confidence, ceteris paribus, the ____________ curve will shift to the ____________ resulting in a ____________ price level (P), ____________ output/real GDP level (Q), and ____________ unemployment level (U).

aggregate demand; left; lower; lower; higher

An inflationary expenditure gap is the amount by which

aggregate expenditures exceed the full-employment level of GDP.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

For an item to act as a medium of exchange and a store of value, it must be which of the following:

all of the above.

The aggregate supply curve (short run) is upsloping because: producers respond to higher prices and profits by increasing output. per-unit production costs rise as the economy moves toward and beyond its full-employment real output. wages and other resource prices adjust more slowly than the price level. all of the above.

all of the above.

Specialization—the division of labor—enhances productivity and efficiency by:

all of the means identified in the other answers.

Two major virtues of the market system are that it:

allocates resources efficiently and allows economic freedom.

During periods of hyper-inflation, money may cease to work as a medium of exchange:

because people and businesses will not want to accept it in transactions.

The Laffer curve suggests that:

beyond some relatively high tax rate, increasing marginal tax rates may actually decrease tax revenues.

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would:

decline

If government decreases its purchases by $5 billion and the MPC is 0.75, then we would expect the equilibrium GDP to:

decrease by $20 billion.

If government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to:

decrease by $30 billion.

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

decrease in real GDP.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:

decrease, quantity demanded will increase, and quantity supplied will decrease.

Suppose Congress believes that the economy is entering a recession and approves a budget that includes increased overall government spending (with no corresponding increase in taxes) in order to stimulate aggregate demand. This is an example of:

discretionary, expansionary fiscal policy.

If at some level of GDP the economy is experiencing an unintended decrease in inventories:

domestic output will increase.

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

Answer the question on the basis of the following data. All figures are in billions of dollars. GPDI 46 Exports of the us 9 disposable income 190 personal saving 10 government purchases 84 NFFI 10 CofFC 52 Dividends 13 Imports of the us 12 taxes on PRoduction and Imports 22 Personal Taxes 38 Social Security COntributions 23 Satatistical Discrepancy 0 The economy characterized by the data is:

experiencing declining production capacity because net investment is negative.

Answer the question on the basis of the following table: 2 220 300 460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Refer to the given table. An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

fall by 2 percentage points.

(Last Word) "The government deregulated the electricity industry in California and a shortage of electricity soon occurred. It is clear that the deregulation caused the shortage." This statement needs careful analysis because it may reflect the:

fallacy of false cause (post hoc fallacy).

All other things equal, as the price of a bond increases, its yield:

falls.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:

government should undertake neither an expansionary nor a contractionary fiscal policy.

Use the following graph to answer question 7. The graph above depicts an economy:

in an inflationary gap.

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. reserves 60 checkable deposits 600 securities 140 stock shares 260 loans 260 property 400 Refer to the given data. Suppose the Fed bought $20 billion of U.S. securities from the banks. This would:

increase bank reserves to $80 billion, reduce bank-held securities to $120 billion, and, assuming a full money multiplier effect, increase the money supply (checkable deposits) by $200 billion.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:

increase government expenditures or reduce taxes.

Supply-side economists believe reductions in marginal tax rates can:

increase incentives to work, save, and invest.

Other things equal, an increase in an economy's exports will:

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

If the Fed wants to discourage commercial bank lending, it will:

increase the interest paid on reserves held at the Fed.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD1 and the monetary authorities desire to increase it to AD2, they should:

increase the money supply from $80 to $100.

Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will:

increase, quantity demanded will decrease, and quantity supplied will increase.

Assume the economy is operating at greater than full employment. A contractionary (restrictive) monetary policy will cause interest rates to ________, which will ___________ investment spending.

increase; decrease

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008:

increased the moral hazard problem by limiting losses from bad financial decisions.

Assuming the short-run aggregate supply curve is upward sloping, an increase in short-run aggregate supply (while aggregate demand remains unchanged) results in a ____________ price level (P), ____________ output/real GDP level (Q), and ____________ unemployment level (U).

lower; higher; lower

In constructing models, economists:

make simplifying assumptions.

An increase in nominal GDP increases the demand for money because:

more money is needed to finance a larger volume of transactions.

The invisible hand refers to the:

notion that, under competition, decisions motivated by self-interest promote the social interest.

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:

output would necessarily rise.

In a private closed economy, when aggregate expenditures equal GDP:

planned investment equals saving.

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:

price must rise, but equilibrium quantity may rise, fall, or remain unchanged.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in:

productivity.

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. same as above Refer to the information. If government desired to raise the equilibrium GDP to $650, it could:

raise G by $30 or reduce T by $40.

If the monetary authorities want to reduce the monetary multiplier, they should:

raise the required reserve ratio.

From society's point of view, the economic function of profits and losses is to:

reallocate resources from less desired to more desired uses.

If the actual unemployment rate is greater than the natural rate of unemployment, a(n):

recessionary gap exists and actual real GDP is less than natural real GDP.

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. reserves 60 checkable deposits 600 securities 140 stock shares 260 loans 260 property 400 Refer to the given data. Suppose the Fed sold $10 billion of U.S. securities to the banks. This would:

reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

A ____________ income tax system is one in which taxes as a percentage of income decrease as income increases.

regressive

Refer to the given graph. A shift of the consumption schedule from C2 to C1 might be caused by a(n):

reverse wealth effect, caused by a decrease in stock market prices.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level.

In the aggregate demand/aggregate supply model, economic growth is best illustrated by a:

rightward shift of the long-run aggregate supply curve.

Answer the question on the basis of the following table for a commercial bank or thrift: 10 40000 10000 20 40000 10000 25 40000 10000 30 40000 10000 Refer to the table. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will:

rise by $6,000 and the monetary multiplier will increase from 4 to 10.

Refer to the diagram. A price of $20 in this market will result in a:

shortage of 100 units.

Economic profits in an industry suggest the industry:

should be larger to better satisfy consumers' desire for the product.

The asset demand for money is most closely related to money functioning as a:

store of value.

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

the division of output is decided by central planning rather than by individuals operating freely through markets.

The "liquidity" of an asset refers to:

the ease with which the asset may be converted into a medium of exchange without loss of value.

The concept of value added refers to:

the increase in the value of a product that occurs at each stage of production.

A production possibilities curve shows:

the maximum amounts of two goods that can be produced, assuming the full use of available resources.

The economizing problem is:

the need to make choices because economic wants exceed economic means.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:

the official unemployment rate will remain unchanged.

The Federal Open Market Committee (FOMC) is made up of:

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

To say that the Federal Reserve Banks are quasi-public banks means that:

they are privately owned but managed in the public interest.

In a competitive market economy, firms select the least-cost production technique because:

to do so will maximize the firms' profits.

Refer to the given market-for-money diagrams. Curve D1 represents the:

transactions demand for money.

Refer to the diagram. The combination of computers and bicycles shown by point G is:

unattainable given currently available resources and technology.