Final Economics
In the long run, the Phillips curve is a ________ at ________. Group of answer choices vertical line; the natural rate of unemployment horizontal line; 0% inflation negatively sloped line; the intersection of aggregate demand and short-run aggregate supply vertical line; the expected rate of inflation
vertical line; the natural rate of unemployment
Refer to Figure 16-11. In the graph above, the shift from AD1 to AD2 represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion. may be greater than or less than would be less than would be greater than would be equal to
would be greater than
Matt's real wage in 2018 is $26.80. If the price level is 104, what is Matt's nominal wage? Group of answer choices $30.80 $27.87 $26.80 $25.77
$27.87
Based on the following information from a balance of payments table, what is the balance on the financial account?Exports of goods and services = $5 billionImports of goods and services = $3 billionNet income on investments = -$2 billionNet transfers = -$2 billionIncrease in foreign holdings of assets in the United States = $4 billionIncrease in U.S. holdings of assets in foreign countries = -$1 billion Group of answer choices- $1 billion $2 billion $1 billion $3 billion
$3 billion
Based on the following information, what is the balance on the current account?Exports of goods and services = $5 billionImports of goods and services = $3 billionNet income on investments = -$2 billionNet transfers = -$2 billionIncrease in foreign holdings of assets in the United States = $4 billionIncrease in U.S. holdings of assets in foreign countries = -$1 billion $4 billion $3 billion $1 billion -$2 billion
-$2 billion
Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.Refer to Table 7-6. What is the opportunity cost to produce 1 belt in Morocco? Group of answer choices 1.5 swords 2 swords 1 sword 1/2 of a sword
1 sword
You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera? Group of answer choices 147 euros 110.15 euros 105 euros 106.25 euros
106.25
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. Without the tariff in place, the United States produces Group of answer choices 15 million pounds of coffee .45 million pounds of coffee. 30 million pounds of coffee. 24 million pounds of coffee.
15 million pounds of coffee.
If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars? Group of answer choices $2.81 $1.32 $2.23 $2.75
2.81
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. With the tariff in place, the United States consumes Group of answer choices 12 million pounds of coffee. 45 million pounds of coffee. 36 million pounds of coffee. 24 million pounds of coffee.
24 million pounds of coffee
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. With the tariff in place, the United States produces 12 million pounds of coffee. 24 million pounds of coffee. 36 million pounds of coffee. 15 million pounds of coffee.
24 million pounds of coffee.
If workers and firms expect that inflation will be 3 percent next year, and real wages are not changing over time, by how much will nominal wages increase? Group of answer choices less than 3 percent 3 percent more than 3 percent depends on actual inflation for next year
3 percent
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. Without the tariff in place, the United States consumes Group of answer choices 45 million pounds of coffee. 36 million pounds of coffee. 30 million pounds of coffee. 15 million pounds of coffee.
45 million pounds of coffee.
Refer to Figure 17-2. At which point are inflation expectations equal to the actual inflation rate? Group of answer choices A B C all of the above
A
Refer to Figure 17-2. At which point is the unemployment rate equal to the natural rate of unemployment? Group of answer choices A. B. C. There is insufficient information on the graph to answer this question.
A
Which of the following would be considered a fiscal policy action? Tax incentives are offered to encourage the purchase of fuel efficient cars. A tax cut is designed to stimulate spending during a recession. The Fed increases the money supply. Spending on the war in Afghanistan is increased to promote homeland security.
A tax cut is designed to stimulate spending during a recession.
Refer to Figure 15-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement from A to E. A to B. C to B. C to D. B to C.
A to B.
Refer to Figure 16-1. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from B to C. C to B. A to B. A to E.
A to B.
Refer to Figure 16-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from B to C. A to E. C to B. A to B. B to A.
A to B.
________ is the ability to produce more of a good or service than competitors when using the same amount of resources. Group of answer choices Comparative advantage Absolute advantage Trade superiority Trade autarky
Absolute advantage
Refer to Figure 17-2. Suppose the economy is at point A in the figure above. Which of the following is true? Group of answer choices The long-run Phillips curve will shift to the right. The short-run Phillips curve will shift to the right. Actual inflation and expected inflation are the same. The long-run Phillips curve will shift to the left. The short-run Phillips curve will shift to the left.
Actual inflation and expected inflation are the same
Refer to Figure 17-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that Group of answer choices ceteris paribus, a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run. the expected rate of inflation in this economy is 10 percent. the natural rate of unemployment in this economy is 5.5 percent. All of the above are correct.
All of the above are correct.
How does an increase in a country's exchange rate affect its balance of trade? An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.
An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.
Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia. We can conclude that Group of answer choices Labor costs are higher for surfboard producers in New Zealand than in Australia. New Zealand has an absolute disadvantage in producing surfboards relative to Australia. Australia also has an absolute advantage in producing surfboards relative to New Zealand. Australia has a lower opportunity cost of producing surfboards relative to New Zealand.
Australia has a lower opportunity cost of producing surfboards relative to New Zealand.
Refer to Figure 16-1. An increase in taxes would be depicted as a movement from ________, using the basic AD-AS model in the figure above. E to B C to D A to B B to C B to A
B to A
Refer to Figure 18-1. The depreciation of the dollar is represented as a movement from B to C. B to A. A to C. D to C. A to B.
B to A.
The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time. the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes.
the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.
The curve showing the short-run relationship between the unemployment rate and the inflation rate is called Group of answer choices the Sargent curve. the unemployment curve. the monetary policy curve. the Phillips curve.
the Phillips curve
When the United States sends money to Indonesia to help tsunami survivors, in what account is this transaction recorded? Group of answer choices the foreign exchange account the financial account the current account the capital account
the current account
The balance of payments includes which three accounts? Group of answer choices the balance of trade account, the net foreign investment account, and statistical discrepancy the net investment account, the net exports account, and the net transfers account the capital flows account, the financial account, and the trade account the current account, the financial account, and the capital account
the current account, the financial account, and the capital account
When the market value of the dollar rises relative to other currencies around the world, we say that the supply of dollars has increased. the dollar has depreciated. dollar has appreciated. the demand for dollars has increased
the dollar has appreciated.
If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then Group of answer choices the dollar has depreciated. the dollar has appreciated. the British pound has depreciated. the British pound has stayed constant in value.
the dollar has depreciated.
The total value of U.S. Treasury bonds outstanding equals the federal government surplus. the federal government debt. the cyclically adjusted budget deficit. the federal government deficit.
the federal government debt.
If the current account is in deficit and the capital account is zero, then the balance of services must be in surplus. there is a capital outflow. the balance of payments must be in surplus. the financial account must be in surplus. the balance of trade must be in surplus.
the financial account must be in surplus.
The federal funds rate is the interest rate on a Treasury Bill. the interest rate a bank charges its best customers. the interest rate the Fed charges commercial banks. the interest rate banks charge each other for overnight loans.
the interest rate banks charge each other for overnight loans.
The monetary policy target the Federal Reserve focuses primarily on today is the inflation rate. M2. the interest rate. the unemployment rate. M1.
the interest rate.
BerriesFishRob2080Bill3060 Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced.Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table. Group of answer choices Bill has an absolute advantage in picking berries and catching fish. Rob has an absolute advantage in picking berries and catching fish. Bill has an absolute advantage in picking berries and Rob has an absolute advantage in catching fish. Rob has an absolute advantage in picking berries and Bill has an absolute advantage in catching fish.
Bill has an absolute advantage in picking berries and Rob has an absolute advantage in catching fish.
Refer to Figure 15-7. Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from C to B. A to B. B to C. C to D. B to D.
C to B.
Refer to Figure 15-7. Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the basic AD-AS model in the figure above, the correct Fed policy for this situation would be depicted as a movement from C to B. A to B. B to C. A to E. C to D.
C to B.
Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from B to A. E to A. D to C. A to E. C to B.
C to B.
Which of the following is considered contractionary fiscal policy? Congress increases the income tax rate. Congress increases defense spending. The New Jersey legislature cuts highway spending to balance its budget. Legislation removes a college tuition deduction from federal income taxes.
Congress increases the income tax rate.
Refer to Figure 18-1. The appreciation of the dollar is represented as a movement from Group of answer choices B to A. C to A. D to C. C to B.
D to C
Refer to Figure 18-1. The appreciation of the euro is represented as a movement from Group of answer choices D to C. A to C. B to C. A to B. D to A.
D to. A
Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.Refer to Table 7-6. Which country has an absolute advantage in producing swords? Group of answer choices Estonia both countries Morocco neither country
Estonia
Refer to Table 7-6. Which country has a comparative advantage in producing swords? Group of answer choices Estonia Morocco both countries neither country
Estonia
Monetary policy refers to the actions the Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. President and Congress take to manage government spending and taxes to pursue their economic objectives. President and Congress take to manage the money supply and interest rates to pursue their economic objectives. Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
Expansionary monetary policy refers to the ________ to increase real GDP. government's increasing spending and lowering taxes Federal Reserve's decreasing the money supply and increasing interest rates government's decreasing spending and raising taxes Federal Reserve's increasing the money supply and decreasing interest rates
Federal Reserve's increasing the money supply and decreasing interest rates
According to the short-run Phillips curve, the unemployment rate and the inflation rate are Group of answer choices negatively related. unaffected by monetary policy. unrelated.positively related.
Negatively related
Refer to Figure 17-1. Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run? Group of answer choices Buy treasury bills. Decrease the money supply. Raise the discount rate. Sell treasury bills. No policy by the Federal Reserve will move the economy to point B in the long run.
No policy by the Federal Reserve will move the economy to point B in the long run.
Refer to Figure 17-1. Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point C in the long run? Group of answer choices Lower the discount rate. Buy treasury bills. Sell treasury bills. Increase the money supply. No policy by the Federal Reserve will move the economy to point C in the long run.
No policy by the Federal Reserve will move the economy to point C in the long run.
If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible. Group of answer choices explicit opportunity marginal implicit
Oppurtunity
Refer to Figure 17-6. If firms and workers have rational expectations, an expansionary monetary policy will cause the short-run equilibrium to move from Group of answer choices point A to point B. point B to point A. point B to point C. point A to point C. point C to point A.
Point A to point C.
Refer to Figure 17-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in expansionary monetary policy, where would the economy end up in the short run? Group of answer choices It would remain at point A. point B point C point D point E
Point C
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy? Aggregate demand is growing too fast to keep the economy at full employment. Potential GDP is forecasted to be higher than equilibrium GDP. Potential GDP is forecasted to be lower than equilibrium GDP. Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.
Potential GDP is forecasted to be higher than equilibrium GDP.
Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 4 percent over the next year, which of the following will occur? Group of answer choices Real wages for university employees will rise. Unemployment of university employees will fall .Inflation will be 5 percent the following year. The decrease in inflation is expected.
Real wages for university employees will rise.
The use of fiscal policy to stabilize the economy is limited because changes in government spending and tax rates have a small effect on interest rates. changes in government spending and tax rates have a small effect on aggregate demand. the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code.
the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced.Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table. Group of answer choices Rob has a comparative advantage in catching fish. Bill has a comparative advantage in catching fish. Bill has an absolute advantage in catching fish. Rob has a comparative advantage in picking berries and catching fish.
Rob has a comparative advantage in catching fish.
An increase in the price level causes a movement down along the money demand curve. the money demand curve to shift to the left. a movement up along the money demand curve. the money demand curve to shift to the right.
the money demand curve to shift to the right.
Monetary policy refers to the actions the Federal Reserve takes to manage government spending and income tax rates to pursue its economic objectives. income tax rates and interest rates to pursue its economic objectives. the money supply and interest rates to pursue its economic objectives. the money supply and income tax rates to pursue its economic objectives.
the money supply and interest rates to pursue its economic objectives.
Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced.Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table. Group of answer choices Bill's opportunity cost for picking berries and catching fish are both greater than Rob's. Bill has a greater opportunity cost than Rob for picking berries. Bill's opportunity cost for catching fish is less than Rob's. Rob has a greater opportunity cost than Bill for picking berries.
Rob has a greater opportunity cost than Bill for picking berries.
The Fed's two main monetary policy targets are the money supply and the inflation rate. the money supply and the interest rate. the inflation rate and real GDP. the interest rate and real GDP.
the money supply and the interest rate.
Government transfer payments include which of the following? interest on the national debt Social Security and Medicare programs grants to state and local governments national defense
Social Security and Medicare programs
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade? Group of answer choices The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden. Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter. Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter. Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.
Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
Refer to Figure 17-2. Suppose the economy is at point A in the figure above. Which of the following is true? The current unemployment rate is equal to the natural rate of unemployment. The expected rate of inflation is 5.5%. The economy will move from A to B. Actual inflation is 1%. The current unemployment rate is 3.8%.
The current unemployment rate is equal to the natural rate of unemployment.
Refer to Figure 17-2. Suppose the economy is at point B in the figure above. Which of the following is true? Group of answer choices The current unemployment rate is 5%. The expected rate of inflation is 3%. Expected inflation and actual inflation are the same. The economy is producing at potential GDP. The natural rate of unemployment is 3.8%.
The expected rate of inflation is 3%.
Which of the following would be classified as fiscal policy? The federal government cuts taxes to stimulate the economy. The federal government passes tax cuts to encourage firms to reduce air pollution. A state government cuts taxes to help the economy of the state. States increase taxes to fund education. The Federal Reserve cuts interest rates to stimulate the economy.
The federal government cuts taxes to stimulate the economy.
Refer to Figure 17-2. Suppose the economy is at point C in the figure above. If workers adjust their expectations of inflation, which of the following will be true? Group of answer choices The natural rate of unemployment is 6%. The short-run Phillips curve will shift to the left. The economy will move from C to A. The short-run Phillips curve will shift to the right. Workers and firms expect inflation to be 1%.
The short-run Phillips curve will shift to the left.
Crowding out will be greater the more sensitive investment spending is to changes in the interest rate. the further equilibrium GDP is below potential GDP. if the economy is in recession, rather than at full employment. the less sensitive consumption spending is to changes in the interest rate.
the more sensitive investment spending is to changes in the interest rate.
The unemployment rate that exists when the economy is at potential GDP is called Group of answer choices cyclical unemployment. the natural rate of unemployment.deflation-based unemployment. zero-rate unemployment.
the natural rate of unemployment.
Refer to Figure 15-1. In the figure above, the money demand curve would move from Money demand1 to Money demand2 if the Federal Reserve sold Treasury securities. the price level increased. real GDP decreased. the interest rate decreased.
the price level increased
If the dollar appreciates against the Mexican peso Mexican imports to the U.S. become more expensive. The value of Mexican imports to the United States does not change. U.S. exports to Mexico become more expensive. U.S. exports to Mexico become less expensive.
U.S. exports to Mexico become more expensive.
When the Fed uses contractionary policy the price level rises less than it would if the Fed did not pursue policy. it causes inflation. it does not change the price level. the price level rises higher than it would if the Fed did not pursue policy.
the price level rises less than it would if the Fed did not pursue policy.
The short-run Phillips curve will shift if there is Group of answer choices an increase in inflation that is unanticipated. a change in inflation expectations.a decrease in inflation that is unanticipated. an increase in the unemployment rate.
a change in inflation expectations.
Which of the following will lead to a decrease in the equilibrium interest rate in the economy? a decrease in GDP an increase in the price level a sale of government securities by the Fed an increase in the reserve requirement an increase in the discount rate
a decrease in GDP
Refer to Figure 16-3. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president? a decrease in income taxes a decrease in government purchases an increase in the money supply a decrease in interest rates
a decrease in income taxes
Which of the following would cause the money demand curve to shift to the left? an increase in the price level a decrease in real GDP an open market purchase of Treasury securities by the Federal Reserve an increase in the interest rate
a decrease in real GDP
An increase in the interest rate causes the money demand curve to shift to the left. a movement down along the money demand curve. the money demand curve to shift to the right. a movement up along the money demand curve.
a movement up along the money demand curve.
What is a "structural" relationship? Group of answer choices a relationship that depends on the size of firm investments in capital such as buildings and other structures a relationship between any two variables that is temporary a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods any relationship that cannot be anticipated
a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods
If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have Group of answer choices adaptive expectations. accommodative expectations. rational expectations.unstable expectations.
adaptive expectations
If the Fed pursues expansionary monetary policy aggregate demand will fall, and the price level will rise. aggregate demand will rise, and the price level will fall. aggregate demand will rise, and the price level will rise. aggregate demand will fall, and the price level will fall.
aggregate demand will rise, and the price level will rise.
Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP? an increase in individual income taxes a decrease in transfer payments an increase in government purchases an increase in the supply of money
an increase in government purchases
Refer to Figure 15-4. In the figure above, a movement from point A to point B would be caused by an increase in the price level. a decrease in the price level. a decrease in real GDP. an increase in the interest rate.
an increase in the interest rate.
Refer to Figure 16-4. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president? an increase in the marginal income tax rate an open market purchase of Treasury bills an increase in transfer payments an increase in interest rates
an increase in the marginal income tax rate
An economy that has interactions in trade or finance with other economies is referred to as a net foreign investment economy. a closed economy. an open economy. a trade-balanced economy.
an open economy.
Refer to Figure 15-2. In the figure above, the movement from point A to point B in the money market would be caused by a decrease in the required reserve ratio by the Federal Reserve. an increase in the price level. a decrease in real GDP. an open market sale of Treasury securities by the Federal Reserve.Refer to
an open market sale of Treasury securities by the Federal Reserve.
If the economy is producing ________, unemployment is at its natural rate. Group of answer choices above potential GDP at an unemployment rate of zero at potential GDP at an inflation rate of zero
at potential GDP
The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was at potential tax revenue. in an expansion. at potential GDP. in a recession.
at potential GDP.
The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of discretionary monetary policy. automatic monetary policy. Correct! automatic stabilizers. discretionary fiscal policy.
automatic stabilizers.
The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of automatic monetary policy. discretionary monetary policy. discretionary fiscal policy. Correct! automatic stabilizers.
automatic stabilizers.
If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to be at potential GDP. be below potential GDP. be above potential GDP. There is insufficient information given here to draw a conclusion.
be below potential GDP.
Refer to Figure 15-3. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will want to hold more money. buy Treasury bills. sell Treasury bills. neither buy nor sell Treasury bills.
buy Treasury bills.
Refer to Figure 17-1. What should the Federal Reserve do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above? Group of answer choices raise taxes raise the discount rate decrease the money supply sell treasury bills buy treasury bills
buy treasury bills
The aggregate demand curve will shift to the left ________ the initial decrease in government purchases. by less than by more than by the same amount as sometimes by more than and other times by less than
by more than
The aggregate demand curve will shift to the right ________ the initial increase in government purchases. by less than by more than by the same amount as sometimes by more than and other times by less than
by more than
Expansionary fiscal policy can be effective in the long run. can be effective in the short run. is never effective because of crowding out. causes complete crowding out in the short run.
can be effective in the short run.
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to not change. increase if the economy is in a recession. decrease. increase.
decrease.
An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. decrease; rise; falls increase; fall; rises increase; rise; falls decrease; fall; rises
decrease; rise; falls
At the point where actual inflation is equal to expected inflation Group of answer choices the short-run Phillips curve intersects the long-run Phillips curve. there is no short-run Phillips curve, as this situation only occurs in the long run. the unemployment rate is zero. the short-run Phillips curve is the same as the long-run Phillips curve.
the short-run Phillips curve intersects the long-run Phillips curve.
An increase in interest rates decreases investment spending on machinery, equipment, and factories, and consumption spending on durable goods, but increases net exports. decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net exports. decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports. increases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports.
decreases investment spending on machinery, equipment, and factories, and consumption spending on durable goods, but increases net exports.
If changes in inflation are higher than expected Group of answer choices the long-run Phillips curve will be negatively sloped. the short-run Phillips curve will be vertical. the short-run Phillips curve will be negatively sloped. the short-run Phillips curve will be positively sloped, but not vertical.
the short-run Phillips curve will be negatively sloped.
Fiscal policy refers to changes in state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. federal taxes and purchases that are intended to fund the war on terrorism. the money supply and interest rates that are intended to achieve macroeconomic policy objectives. federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
The United States usually exports ________ goods than it imports and exports ________ services than it imports. Group of answer choices more; fewer fewer; fewer fewer; more more; more
fewer; more
If a country has a ________ exchange rate, its central bank must buy and sell its holdings of currencies to maintain a given exchange rate. flexible floating all of the above fixed
fixed
When exchange rates are not determined in the market but are instead set by a country's central bank, we say that the country's exchange rate is flexible. a real exchange rate. a nominal exchange rate. fixed.
fixed.
An increase in government purchases will increase aggregate demand because government expenditures are a component of aggregate demand. the decline in the price level will increase demand. the decline in the interest rate will increase demand. consumption expenditures are a component of aggregate demand.
government expenditures are a component of aggregate demand.
Congress and the president carry out fiscal policy through changes in government purchases and the money supply. government purchases and taxes. taxes and the interest rate. interest rates and the money supply.
government purchases and taxes.
Refer to Figure 17-2. Suppose the Fed used expansionary policy to push short-run equilibrium to point B. If the short-run equilibrium remained at point B long enough Group of answer choices the short-run Phillips curve would shift up. the economy would stay at point B in the long run. the short-run Phillips curve would shift down.the economy would move back to point A.
the short-run Phillips curve would shift up.
Automatic stabilizers refer to the money supply and interest rates that automatically increase or decrease along with the business cycle. government spending and taxes that automatically increase or decrease along with the business cycle. changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives.
government spending and taxes that automatically increase or decrease along with the business cycle.
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. With the tariff in place, the United States imports 24 million pounds of coffee. imports 30 million pounds of coffee. imports 12 million pounds of coffee. exports 36 million pounds of coffee.
imports 12 million pounds of coffee.
Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to increase, then decrease. not change. increase. decrease.
increase
From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply, then the Federal Reserve would most likely increase interest rates. increase income tax rates. decrease interest rates. decrease income tax rates.
increase interest rates.
Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________. increase; increase decrease; decrease decrease; increase increase; decrease
increase; decrease
A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. decrease; rise; falls decrease; fall; rises increase; rise; falls increase; fall; rises
increase; fall; rises
An increase in the interest rate decreases the percentage yield of holding money. increases the opportunity cost of holding money. decreases the opportunity cost of holding money. increases the percentage yield of holding money.
increases the opportunity cost of holding money.
Expansionary fiscal policy involves increasing taxes or decreasing government purchases. decreasing the money supply and increasing interest rates. increasing the money supply and decreasing interest rates. increasing government purchases or decreasing taxes.
increasing government purchases or decreasing taxes.
The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures. autonomous; investment; induced autonomous; consumption; induced induced; investment; autonomous induced; consumption; autonomous
induced; consumption; autonomous
Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in income tax rates. oil prices. investment spending. business taxes.
investment spending
Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should raise taxes by $200 billion. lower taxes by $200 billion. You Answered raise taxes by an amount more than $200 billion. lower government purchases by an amount less than $200 billion. lower government purchases by $200 billion.
lower government purchases by an amount less than $200 billion.
Refer to Figure 15-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to lower interest rates. lower income taxes. raise interest rates. raise income taxes.
lower interest rates
Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply causes people to spend more because they know prices will rise in the future. lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports. raises the interest rate and consumers decrease spending on durable goods. lowers the interest rate, and firms increase investment spending.
lowers the interest rate, and firms increase investment spending.
The Federal Reserve's two main ________ are the money supply and the interest rate. fiscal tools policy tools fiscal policy targets monetary policy targets
monetary policy targets
An appreciating yen makes Japanese products less expensive in foreign markets. more expensive in both foreign markets and the Japanese market. more expensive in foreign markets. more expensive in the Japanese market.
more expensive in foreign markets.
If wages and prices adjust slowly, we would expect expansionary monetary policy to be Group of answer choices more likely to affect the unemployment rate. less likely to reduce the natural unemployment rate. more likely to reduce inflation. more likely to result in a vertical short-run Phillips curve.
more likely to affect the unemployment rate.
A decrease in aggregate demand will Group of answer choices cause the short-run Phillips curve to shift to the right. decrease unemployment.cause inflation. move the economy to a lower point on the short-run Phillips curve.
move the economy to a lower point on the short-run Phillips curve.
Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect. aggregate demand expenditure multiplier consumption
multiplier
The money demand curve has a negative slope because an increase in the price level decreases the quantity of money demanded. positive slope because an increase in the interest rate increases the quantity of money demanded. positive slope because an increase in the price level increases the quantity of money demanded. negative slope because an increase in the interest rate decreases the quantity of money demanded.
negative slope because an increase in the interest rate decreases the quantity of money demanded.
What can the Federal Reserve do to reduce the natural rate of unemployment? Group of answer choices nothing follow expansionary monetary policy that will reduce inflation follow contractionary monetary policy that will increase inflation follow expansionary monetary policy that will increase inflation
nothing
Refer to Figure 17-6. If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from Group of answer choices point A to point C. point B to point C. point A to point B. point C to point B. point B to point A.
point A to point B.
Refer to Figure 17-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run? Group of answer choices It would remain at point A. point B point C point D point E
point B
Which of the following are goals of monetary policy? price stability, economic growth, and high employment price stability, maximizing the value of the dollar relative to other currencies, and high employment price stability, economic growth, and maximizing the value of the dollar relative to other currencies maximizing the value of the dollar relative to other currencies, economic growth, and high employment
price stability, economic growth, and high employment
The Federal Reserve System's four monetary policy goals are price stability, low government budget deficits, low current account deficits, and a low rate of bank failures. low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. price stability, high employment, economic growth, and stability of financial markets and institutions. a low rate of bank failures, high reserve ratios, price stability, and economic growth.
price stability, high employment, economic growth, and stability of financial markets and institutions.
Refer to Figure 15-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to raise interest rates. lower income taxes. raise income taxes. lower interest rates.
raise interest rates.
When individuals use all available information about an economic variable to make a decision, expectations are Group of answer choicesunderestimates of reality.rational.overestimates of reality.accurate
rational
Refer to Figure 15-1. In the figure, the money demand curve would move from Money demand1 to Money demand2 if the price level decreased. the Federal Reserve sold Treasury securities. real GDP increased. the interest rate increased.
real GDP increased.
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect nominal interest rates. foreign exchange rates. real interest rates. tax rates.
real interest rates.
If actual inflation is greater than expected inflation Group of answer choices real wages fall. the Phillips curve is a vertical line. the unemployment rate rises. real wages rise.
real wages fall.
During recessions, government expenditure automatically rises because of the progressive income tax system. rises because of programs such as unemployment insurance and Medicaid. falls because of programs such as unemployment insurance and Medicaid. falls because of the progressive income tax system.
rises because of programs such as unemployment insurance and Medicaid.
Figure 17-1. What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above? Group of answer choices sell treasury bills lower taxes buy treasury bills increase the money supply lower the discount rate
sell treasury bills
Expansionary fiscal policy will shift the short-run aggregate supply curve to the left. shift the aggregate demand curve to the right. not shift the aggregate demand curve. shift the aggregate demand curve to the left.
shift the aggregate demand curve to the right.
A decrease in the expected inflation rate will Group of answer choices shift the short-run Phillips curve down. shift the short-run Phillips curve up increase the inflation rate. increase the unemployment rate.
shift the short-run Phillips curve down.
The Federal Reserve can directly affect its monetary policy ________, which then affect its monetary policy ________. targets; goals goals; tools goals; targets targets; tools
targets; goals
A tax imposed by a government on imports of a good into a country is called a Group of answer choices value added tax. quota. tariff. sales tax.
tariff
If the Fed raises its target for the federal fund rate, this indicates that the Fed is attempting to combat deflation. the Fed is pursuing a contractionary monetary policy. The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP. the Fed is pursuing an expansionary monetary policy.
the Fed is pursuing a contractionary monetary policy.
If the long-run aggregate supply curve is vertical Group of answer choices the economy stays at the natural rate of inflation in the long run. the trade-off between unemployment and inflation cannot be permanent. unemployment and inflation are positively related in the long run. the short-run Phillips curve must be vertical.
the trade-off between unemployment and inflation cannot be permanent.
If the Phillips curve represents a "structural relationship," then Group of answer choices the Phillips curve will be vertical in the long run. the trade-off between unemployment and inflation holds only for the short run the trade-off between unemployment and inflation holds in the long run, but not in the short run. the trade-off between unemployment and inflation is permanent.
the trade-off between unemployment and inflation is permanent.
What is the natural rate of unemployment? Group of answer choices any unemployment rate that is above the inflation rate an unemployment rate of 0% the unemployment rate that exists when the economy is at potential GDP the unemployment rate that exists when the economy is at a trough in a business cycle
the unemployment rate that exists when the economy is at potential GDP
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.Refer to Figure 7-2. The tariff causes domestic consumption of coffee to rise by 6 million pounds. to rise by 12 million pounds. to fall by 21 million pounds. to fall by 9 million pounds.
to fall by 9 million pounds.
The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms. Group of answer choices ignored unexpected perfectly predicted expected
unexpected
Which of the following describes what the Fed would do to pursue an expansionary monetary policy? use open market operations to buy Treasury bills use discount policy to raise the discount rate raise the reserve requirement use open market operations to sell Treasury bills
use open market operations to buy Treasury bills
If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve, the short-run Phillips curve will be Group of answer choices vertical. negatively sloped. flatter in the long run than it is in the short run. positively sloped.
vertical
