Exams

5. When an expansionary monetary policy leads to an acceleration in the rate of inflation, it will also result in - a. lower nominal interest rates. - b. higher nominal interest rates - c. lower money wages - d. an appreciation of the dollar in the foreign exchange market

B

1. Which of the following is true regarding the methodology of public choice analysis? -a. It develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives. - b. It focuses on the development of a single theory of government as a whole rather than on analyzing the choices made by individual agents in the public sector -c. It assumes that all decisions made by individual actors in the public sector are done with the public interest in mind, rather than their private interests - d. It assumes that individuals generally react to the incentives they face when making choices in the private sector but not in the public sector.

A

10. It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find - a. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion - b. budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion - c. it more attractive to raise taxes than to increase spending - d. it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion

A

11. With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy? - a. Instituting a tax policy encouraging investment at the expense of consumption - b. An increase in the marginal income tax rate, which would reduce the work effort of individuals - c. Passage of legislation reducing the workweek to 30 hours - d. Instituting a tax policy encouraging consumption at the expense of investment

A

12. If expected inflation is constant and the nominal interest rate increased 3 percentage points, the real interest rate - a. increase 3 percentage points - b. decrease by 3 percentage points - c. increase, but by less than 3 percentage points - d. decrease, but by less than 3 percentage points

A

14. When the economy is operating at an output beyond its full-employment potential, the - a. strong demand for resources will place upward pressure on resource prices - b. aggregate demand will increase until full employment is restored - c. actual level of unemployment will exceed the natural rate of unemployment - d. actual level of unemployment will equal the natural rate of unemployment

A

15. The expenditure multiplier indicates that - a. changes in investment, government, or consumption spending can trigger much larger changes in output. - b. an increase in saving will cause output to rise by a multiple of the additional saving - c. a market economy will be more stable than classical economists thought - d. the marginal propensity to consume is greater than one.

A

13. When the Fed sells Treasury Bonds on the open market, it will tend to - a. increase the money supply and lower interest rates - b. decrease the money supply and raise interest rates - c. decrease the money supply and lower interest rates - d. increase the money supply and raise interest rates.

B

17. The major overall purpose of the Federal Reserve System is to - a. regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy. - b. regulate the levels of excess reserves held by member banking institutions. - c. keep the discount rate flexible - d. insure the deposits of persons holding funds with banking institutions

A

19. The value of a good - a. depends on many factors, including who uses it and under what circumstances. - b. depends on the labor necessary to supply the good. - c. is determined by the cost of producing it. - d. can be measured objectively by a survey of manufacturers of the good.

A

2. If the Fed wanted to expand the money supply as part of an antirecession strategy, it could - a. decrease the interest rate paid on excess reserves encouraging banks to extend more loans. - b. increase the reserve requirements imposed on commercial banks - c. sell U.S. government securities and other financial assets that it is currently holding. - d. raise the interest rate on loans extended to banks and other financial institutions.

A

20. Public choice analysis indicates - a. rent seeking will be less attractive if the nation's legal (or constitutional) structure makes it difficult to use the political process to take the property or income of others. - b. rent-seeking activities will improve the efficiency of resource allocation and promote economic growth. - c. politicians will consistently oppose programs favored by rent seekers if those programs reduce the welfare of society.

A

20. The actual rate of unemployment will be greater than the natural rate of unemployment when - a. the actual output is less than the economy's potential output - b. the actual output is greater than the economy's potential output - c. the actual output is equal to the economy's potential output d. the inflation rate has been relatively constant for several year

A

24. A decrease in the money supply will have which of the following effects? - a. It will raise the interest rate, causing a decrease in investment and a decrease in GDP. - b. It will reduce the interest rate, causing a decrease in investment and an increase in GDP. - c. It will raise the interest rate, causing an increase in investment and an increase in GDP. - d. It will reduce the interest rate, causing an increase in investment and a decrease in GDP. - e. It will reduce the interest rate, causing a decrease in investment and a decrease in GDP.

A

3. Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank? - a. There is initially no change in the supply of money; your bank's excess reserves are reduced by $800 - b. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $800 - c. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $200. - d. There is initially no change in the supply of money; your bank's excess reserves are reduced by $200.

A

3. Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods? - a. The real figures will reflect changes in the quantity of output and not changes in the general level of prices - b. The real GDP figures are a better measure of changes in the general level of prices. - c. The real figures will reflect changes in the general level of prices as well as changes in the quantity of output. - d. The real GDP figures adjust for changes in the level of employment

A

5. Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output, - a. lower resource prices and declining interest rates will direct the economy back to full employment. - b. long-run aggregate supply will increase. - c. higher resource prices and rising interest rates will direct the economy back to full employment - d. the natural rate of unemployment will increase

A

6. When full employment is present - a. the actual rate of unemployment will equal the natural rate - b. everyone who would like to have a job will be employed - c. the actual rate of unemployment will be less than the actual rate - d. the actual rate of unemployment will exceed the natural rate

A

7. During an expansionary period, the actual rate of unemployment will be - a. less than the natural rate of unemployment - b. greater than the natural rate of unemployment. - c. unaffected by the economic expansion - d. equal to the natural rate of unemployment.

A

9. Which of the following most accurately indicates the political incentive to spend and/or tax? - a. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes - b. Voters will generally support higher taxes in order to eliminate budget deficits. - c. Politicians will find tax increases more attractive than increases in government expenditures. - d. Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents

A

10. Creative destruction refers to the process where -a. new ways to destroy buildings are employed -b. new products and methods of production are continuously replacing old ones -c. producing more of one good causes you to produce less of another -d. everybody involved is made worse off

B

11. As the dollar appreciates, which of the following is most likely to occur? - a. American firms will reduce their purchases of financial assets abroad - b. More Americans will travel abroad - c. More foreigners will visit the United States - d. American imports will fall

B

11. The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for - a. a gradual increase in the money supply, following the trend of the previous decade. - b. a rapid increase in the money supply, potentially leading to inflation. - c. a reduction in the ability of banks to extend additional loans - d. a sharp contraction in the money supply, which is likely to increase the length and severity of the recession.

B

11. Which of the following is a major deficiency of fiscal policy as a stabilization tool? - a. Congress is reluctant to make changes in either taxes or expenditures - b. Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly - c. A change in fiscal policy exerts major effects on the economy quickly - d. The Constitution requires the president to submit and Congress to pass a balanced budget

B

13. According to the Keynesian view, if policy makers thought the economy was about to enter an expansionary period, which of the following would be most appropriate? - a. An increase government expenditures - b. A tax increase - c. A planned increase in the budget deficit. - d. A tax decrease

B

13. What do the forces of supply and demand assure? - a. Demand curves and supply curves tend to shift to the right as time goes by. - b. The price of a good will eventually rise in response to an excess demand for that good. - c. When the supply curve for a good shifts, the demand curve for that good shifts in response

B

15. When the economy is operating at an output rate below its full-employment level, the - a. current rate of output will tend to persist into the future - b. actual level of unemployment will exceed the natural rate of unemployment - c. actual unemployment rate will be less than the natural rate of unemployment - d. strong demand for resources will cause resource prices to rise

B

15. Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy? - a. It would increase the reserve requirements. - b. It would buy U.S. securities - c. It would raise the discount rate - d. It would force the Treasury to reduce the national debt

B

18. If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to - a. charge a stand-by passenger no less than the full fare of $500. - b. charge a stand-by passenger more than $100. - c. fill the seats at the last minute for any price. - d. charge a stand-by passenger more than $500 - e. charge a stand-by passenger less than $100.

B

19. Historically, Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because - a. there are fewer adverse side effects to an increase in government spending - b. all of the spending will add to aggregate demand, but a portion of the tax cut will be saved. - c. government spending will stimulate aggregate demand more quickly than a tax cut - d. an increase in government spending can quickly be reversed once the economy has recovered.

B

19. Sally is on a temporary layoff from her factory job. If Sally participates in the BLS survey, she will be classified as - a. employed and in the labor force - b. unemployed and in the labor force - c. unemployed and out of the labor force - d. employed and out of the labor force

B

22. If the Fed unexpectedly decreases the money supply, real GDP - a. increases because the resulting increase in the interest rate leads to a decrease in investment. - b. decreases because the resulting increase in the interest rate leads to a decrease in investment. - c. decreases because the resulting increase in the interest rate leads to an increase in investment. - d. decreases because the resulting decrease in the interest rate leads to an increase in investment. - e. increases because the resulting decrease in the interest rate leads to an increase in investment.

B

23. Which of the following is true regarding private ownership? - a. Private ownership generally gives the owner little incentive to find ways to use the resource wisely. - b. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others - c. Relative to common ownership, private ownership generally leads to less conservation of resources - d. With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource.

B

25. According to the invisible hand principle, competitive markets generally - a. require central direction; otherwise, the actions of self-interested individuals will conflict with the general interests of society - b. bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent. - c. bring the self-interest of individuals into harmony with the efficient allocation of resources when the behavior of individuals is directed by democratic centralized planning. - d. promote the economic welfare of self-interested producers at the expense of unorganized groups such as consumers and taxpayers.

B

25. What is the effect on GDP if a used car dealer purchases a used car for $3,000, refurbishes it, and sells it for $8,000? - a. The dealer contributes value added equal to $5,000, but nothing is added to GDP. - b. The dealer contributes value added equal to $5,000, and consequently $5,000 is added to GDP - c. The dealer contributes value added equal to $8,000, but only $5,000 is added to GDP - d. The dealer contributes nothing to production because only existing goods are involved

B

3. The law of demand refers to the - a. inverse relationship between the price of a good and the quantity offered for sale -b. inverse relationship between the price of a good and the willingness of consumers to buy it - c. price increase that results from an increase in demand for a good of limited supply - d. increase in the quantity of a good available when its price increases

B

6. An analysis of countries experiencing rapid inflation indicates that inflation is generally - a. the result of restrictive macroeconomic policy, which pushes up interest rates - b. caused by rapid growth in the money supply - c. the result of bad weather conditions that reduce the supply of agriculture products. - d. caused by strong labor unions that push wages up rapidly

B

6. Which of the following best explains why high marginal tax rates reduce GDP? - a. High marginal tax rates will reduce budget deficits and lower interest rates - b. High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently - c. High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods. - d. High marginal tax rates will encourage foreign investment

B

7. In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates, which of the following is likely to occur? - a. There will be a net inflow of capital, which will cause the dollar to depreciate and net exports to increase - b. There will be a net inflow of capital, which will cause the dollar to appreciate and net exports to decline - c. There will be a net outflow of capital, which will cause the dollar to appreciate and net exports to decline - d. There will be a net outflow of capital, which will cause the dollar to depreciate and net exports to increase.

B

7. In the long run, the primary effect of rapid monetary growth is - a. lower nominal interest rates - b. inflation - c. reduced unemployment. - d. an increase in real output.

B

7. Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction? - a. If the dress originally costs more than $20, Rebecca gains and Hillary loses. - b. Both parties expect to gain from this transaction. - c. If Hillary gains from the transaction, Rebecca must lose an equal amount - d. If the dress originally costs less than $20, Hillary gains and Rebecca loses

B

8. Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case? - a. The multiplier effect - b. The crowding-out effect - c. Expansionary monetary policy - d. None of the above is correct

B

9. Opportunity costs differ among nations primarily because -a. nations have different religious, political, and economic institutions. -b. nations have different amounts of land, labor skills, capital, and technology -c. the work-leisure preferences of people vary considerably from one nation to another. -d. nations employ different currencies

B

When an economy is in long run equilibrium - a. the interest rate will decline - b. the actual and natural rates of unemployment will be equal - c. it will be impossible to sustain the current rate of output in the future. - d. Prices will be constant (that is, inflation will be zero)

B

1. If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent, the - a. price level must have increased approximately 2 percent compared to the prior year - b. unemployment rate must have increased during the year - c. price level must have decreased approximately 2 percent compared to the prior year - d. price level must have decreased approximately 50 percent compared to the prior year.

C

1. Suppose demand decreases and supply increases. Which of the following will happen? - a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease - b. The change in equilibrium price and quantity cannot be determined - c. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease - d. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase - e. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase

C

10. Which of the following assets can a commercial bank count as reserves? - a. The savings accounts of its depositors - b. Its holdings of U.S. Treasury bills - c. Its vault cash and deposits with the Fed - d. Its outstanding loans

C

12. If a surplus exists in a market we know that the actual price is - a. below equilibrium price and quantity supplied is greater than quantity demanded. - b. below equilibrium price and quantity demanded is greater than quantity supplied. - c. above equilibrium price and quantity supplied is greater than quantity demanded - d. above equilibrium price and quantity demanded is greater than quantity supplied

C

12. Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a - a. $100 million decrease - b. $100 million increase - c. $500 million decrease - d. $500 million increase

C

12. Which of the following best expresses the central idea of countercyclical fiscal policy? - a. The balanced-budget approach is the proper criterion for determining annual budget policy. - b. Actual deficits should equal actual surpluses during a period of deflation - c. Deficits are planned during economic recessions, and surpluses are utilized to restrain expansionary periods. - d. Planned deficits are experienced during economic expansionary periods and planned surpluses during economic recessions

C

13. If an unanticipated increase in aggregate demand results in an output beyond the economy's long-run capacity, long-run equilibrium will eventually be restored by - a. a decrease in the natural rate of unemployment - b. an increase in the economy's productive capacity (LRAS shifts to the right) - c. higher resource prices and an increase in SRAS - d. higher resource prices and a decrease in SRAS 14. When the economy is operating at an output beyond its f

C

14. If the Fed wanted to expand the money supply as part of an antirecession strategy, it could - a. raise the discount rate - b. sell U.S. securities on the open market - c. buy U.S. securities on the open market - d. increase the reserve requirements

C

14. Within the framework of the Keynesian model - a. the economy will continually be in equilibrium - b. changes in prices rather than changes in output direct the economy to equilibrium - c. changes in output rather than changes in prices direct the economy to equilibrium. - d. changes in interest rates and resource prices will direct the economy to equilibrium

C

16. According to the Keynesian view, if purchasers buy more goods and services than businesses expect - a. the current level of income would persist in the future - b. firms would reduce their investment, and the economy would fall into a recession - c. the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels - d. the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level

C

16. After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water? - a. Price will increase, and quantity will decrease. - b. Price will decrease, and quantity will increase. - c. Price will increase, and quantity will increase. - d. Price will decrease, and quantity will decrease.

C

16. If the Fed wanted to expand the money supply as part of an antirecession strategy, it could - a. decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. - b. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans - c. decrease the interest rate paid on excess reserves encouraging banks to extend more loans. - d. increase the interest rate paid on excess reserves encouraging banks to extend more loans

C

16. Which of the following would cause prices to fall and output to rise in the short run? - a. Aggregate demand shifts left - b. Short-run aggregate supply shifts left - c. Short-run aggregate supply shifts right - d. Aggregate demand shifts right

C

17. How will a reduction in the price of cotton (a key part of making jeans) influence the market for blue jeans? - a. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the left. - b. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the right. - c. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right. - d. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the left.

C

18. If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably - a. selling government securities to banks - b. encouraging banks to exchange their Fed deposits for currency - c. buying government securities from the public - d. selling government securities to the public

C

18. Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate - a. is unaffected, and the labor-force participation rate increases - b. increases, and the labor-force participation rate decreases - c. increases, and the labor-force participation rate is unaffected - d. decreases, and the labor-force participation rate is unaffected.

C

19. An increase in the money supply will have which of the following effects? - a. It will raise the interest rate, causing a decrease in investment and a decrease in GDP. - b. It will reduce the interest rate, causing an increase in investment and a decrease in GDP. - c. It will reduce the interest rate, causing an increase in investment and an increase in GDP. - d. It will reduce the interest rate, causing a decrease in investment and an increase in GDP. - e. It will raise the interest rate, causing an increase in investment and an increase in GDP.

C

2. Suppose, in dollar terms, nominal GDP increased approximately 4 percent during a given year, and real GDP decreased 1 percent. Which of the following best explains these events? - a. Prices increased approximately 4 percent - b. Prices decreased approximately 3 percent - c. Prices increased approximately 5 percent - d. The money supply increased approximately 4 percent

C

20. If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to - a. reduce unemployment. - b. increase inflation - c. increase real interest rates. - d. increase real output

C

21. Economics is primarily the study of - a. the methods business firms use to reduce their costs of production - b. how to make money in the stock market. - c. the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited - d. how to operate a business successfully

C

21. In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects? - a. The costs are highly concentrated, and the benefits are widespread among voters - b. The benefits are highly concentrated, and costs are widespread among voters - c. Both the benefits and costs are widespread among voters. - d. The benefits accrue primarily in the future, while the costs are more visible during the current period.

C

22. The shortsightedness effect suggests that - a. politicians have a strong incentive to support projects that yield benefits in the distant future, especially when the costs of the project must be paid for in the current period - b. voters will tend to weigh future costs and benefits more heavily than current costs and benefits - c. politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future - d. legislators will be unwilling to trade votes on issues, especially when those issues benefit only special interest groups.

C

22. Three basic decisions must be made by all economies. What are they? - a. What will be consumed; how will goods be consumed; for whom will goods be consumed? - b. How much will be produced; when will it be produced; who will produce it? - c. What goods will be produced; how will goods be produced; for whom will goods be produced? - d. How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply?

C

22. Which of the following is necessarily true when an economy is in long-run equilibrium? - a. The actual output will be less than the full-employment (or potential) output - b. The output of the economy will be greater than the full-employment output - c. The actual rate of unemployment equals the natural rate of unemployment. - d. Prices will be constant (that is, inflation will be zero)

C

24. Because of transactions which take place in the underground economy, what is the effect on GDP? - a. The value of the GDP calculation through the expenditure approach will be greater then the value calculated through the income approach. - b. The GDP calculation tends to overstate the actual value of goods sold in the economy - c. The GDP calculation tends to understate the actual value of goods sold in the economy - d. The value of the GDP calculation will be equal to the value of the national income calculation - e. The GDP calculation tends to accurately portray the value of goods sold in the economy

C

24. Economists use the term ceteris paribus to indicate which of the following? - a. Their conclusions are based on normative economics rather than positive economic analysis. - b. Supply and demand are in balance. - c. Other things are assumed to be constant - d. The analysis is true for the individual but not for the economy as a whole.

C

25. Economics indicates that government funding of special interest projects and favoritism of some business firms relative to others will lead to - a. the funding of productive projects that will improve the well-being of most citizens - b. a decline in political contributions and a reduction in the quality of the candidates willing to run for political office. - c. economic inefficiency because the funding will be driven by political rather than economic considerations. - d. efficient allocation of resources because the government action will correct the failures of the market.

C

25. If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do? - a. Raise the discount rate - b. Reduce taxes - c. Buy government bonds from the public - d. Increase government expenditures

C

4. Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if - a. the higher taxes cause people to save less - b. the government uses the additional revenue to retire some of the federal debt - c. the higher taxes cause workers to work less - d. the government purchases goods with the additional revenue - e. the higher taxes lead workers to seek out a second job

C

4. Which of the following will cause the U.S. money supply to expand? - a. An increase in the discount rate - b. A commercial bank purchases U.S. securities from the Fed as an investment - c. A commercial bank uses excess reserves to extend a loan to a customer - d. An increase in reserve requirements

C

5. Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will - a. exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity - b. make it more costly for parents to provide for their children - c. reduce the after-tax cost of raising children and, therefore, increase the birth rate - d. reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate

C

6. According to the law of comparative advantage, - a. individuals and nations gain when they specialize in producing those goods they consume - b. individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply - c. individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply - d. all of the above are true

C

8. Which of the following most clearly distinguishes between positive and normative economics? - a. Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products. - b. Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce. - c. Positive economics is the study of the facts; normative economics is concerned with what ought to be

C

9. If the quantity supplied of euro were greater than the quantity demanded, which of the following would occur? - a. The price of the dollar would fall - b. The euro market would be in equilibrium - c. The price of the euro would fall. - d. The price of the euro would rise

C

1. You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank? - a. The money supply immediately increases, and the reserves of your bank decline. - b. The money supply immediately decreases, and the reserves of your bank increase. - c. Both money supply and the reserves of your bank immediately increase. - d. There is no initial change in the money supply, and the reserves of your bank decline.

D

10. If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has - a. depreciated relative to the peso. Other things the same, the depreciation would make you more likely to travel to Mexico - b. appreciated relative to the peso. Other things the same, the appreciation would make you less likely to travel to Mexico - c. depreciated relative to the peso. Other things the same, the depreciation would make you less likely to travel to Mexico - d. appreciated relative to the peso. Other things the same, the appreciation would make you more likely to travel to Mexico

D

14. Which of the following occurs when a shortage occurs in the market for a good? - a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. - b. Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. - c. Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption. - d. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

D

17. If Sam Jackson voluntarily quits one job, possesses marketable skills, and expects to find a new job in a few weeks, then Mr. Jackson is considered - a. unwise to quit his job without already having another one - b. seasonally unemployed - c. structurally unemployed - d. frictionally unemployed - e. cyclically unemployed

D

17. Which of the following is the strongest evidence of a shift toward a more expansionary fiscal policy? - a. A reduction in government spending as a share of the economy and an expansion in the size of the budget deficit - b. A reduction in government spending as a share of the economy and a shift of the budget toward a surplus - c. An increase in government spending as a share of the economy and a shift of the budget toward a surplus - d. An increase in government spending as a share of the economy and an expansion in the size of the budget deficit

D

18. Federal budget projections for the next ten years indicate both higher levels of government spending and large budget deficits. Non-Keynesian economists argue that this will lead to - a. growth rates above the historic average for the decade. - b. lower taxes, which will reduce aggregate supply and retard long-term growth - c. an increase in aggregate demand and real output - d. higher interest rates, higher taxes, and sluggish future growth.

D

2. Suppose demand increases and supply decreases. Which of the following will happen? - a. The change in equilibrium price and quantity cannot be determined - b. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. - c. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. - d. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase - e. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease

D

2. Which of the following is true about public choice analysis? - a. It suggests that individual voters have a greater incentive to become informed when making choices among political candidates than when making choices about the products they consume - b. It assumes individuals in the public sector seek to serve the public interest rather than their own personal interests -c. It finds that the individuals managing government agencies generally have a much stronger incentive to be efficient than do individuals managing private businesses - d. It is the study of the decision making of individual actors (such as voters, politicians, and bureaucrats) in the public sector

D

20. What is the most fundamental concept in economics? - a. Changes in incentives generally do not influence human behavior. - b. Goods that are provided by government are free for society. - c. Individuals generally do not consider other alternatives when making a choice. - d. Changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive.

D

21. In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be - a. higher real interest rates and a reduction in aggregate demand - b. lower real interest rates and a reduction in aggregate demand - c. higher real interest rates and an increase in aggregate demand - d. lower real interest rates and an increase in aggregate demand

D

23. If the Federal Reserve wanted to expand the money supply in order to increase output, it should - a. increase the discount rate, which will raise the market rate of interest; this will cause both costs and prices to rise. - b. sell government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise. - c. decrease taxes, which will reduce costs and cause prices to fall. - d. buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise

D

23. In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources? - a. When the benefits are widespread and the costs are concentrated - b. When the benefits are concentrated and the costs are concentrated - c. When the benefits are widespread and the costs are widespread - d. When the benefits are concentrated and the costs widespread

D

24. From the standpoint of society as a whole, rent seeking is - a. productive because each interest group gains more than they spend on rent-seeking activities. - b. counterproductive because it fails to alter public policy - c. productive because the resources used in rent seeking have no opportunity cost to society. - d. counterproductive because it takes resources away from the creation of wealth in the private sector.

D

3. Which of the following about the political process is true? - a. Politicians generally place more weight on how their decisions affect future costs and benefits than on how they affect present costs and benefits. - b. A politician always attempts to pursue policies that are good for society even if they are strongly opposed by many of her constituents or contributors - c. The value of being in office is so low that most political candidates spend very little on campaigns to try to win (or keep) elected office. - d. To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors

D

4. Other things being equal, the effect of a decrease in the price of orange juice would be illustrated by which of the following? - a. A leftward shift in the demand curve for orange juice -b. A rightward shift in the demand curve for orange juice -c. A decrease in the quantity demanded orange juice. -d. An increase in the quantity demanded for orange juice.

D

4. When output is greater than the economy's long-run capacity, which of the following is most likely to occur? - a. An abnormally high rate of unemployment - b. A reduction in the general level of prices. - c. A reduction in imports - d. Increases in real interest rates and real resource prices

D

5. Supply-side economics stresses that high marginal tax rates - a. encourage people to work, supply resources, and use them more efficiently. - b. are the key to maintaining a balanced budget - c. are an effective short-run countercyclical tool to promote recovery from a recession. - d. discourage people from working harder and using their resources productively

D

8. Which of the following is a primary action of modern banks? - a. They are required to hold 90% of their deposits as excess reserves - b. They expand the money supply by printing currency when they need it. - c. They decrease the supply of money when they extend additional loans - d. They hold only a fraction of their assets in the form of required reserves relative to their deposits.

D

8. Which of the following is true when an economy is operating at its full employment rate of output? - a. The rate of unemployment will be zero - b. The economy's potential rate of output will exceed actual GDP - c. Output will exceed the economy's maximum sustainable rate. - d. The actual rate of unemployment will equal the natural rate

D

9. If a customer deposits $1,000 cash into her checking account, the bank's - a. assets rise by $1,000 and liabilities fall by $1,000 - b. profits rise by $1,000 - c. assets and liabilities both fall by $1,000 - d. assets and liabilities both rise by $1,000 - e. assets fall by $1,000 and liabilities rise by $1,000

D

15. What will happen if the demand for bicycles increases? - a. Quantity supplied will decrease. - b. Equilibrium price will increases and equilibrium quantity will decrease - c. The quantity demanded will decrease. - d. Equilibrium price will decrease and equilibrium quantity will increase - e. Quantity supplied will increase.

E

23. Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true? - a. Both your nominal and real wages decreased - b. Although your nominal wage fell, your real wage increased - c. Both nominal and real wages increased - d. Your nominal wage fell - e. Your real wage fell

E