Final exam review:
Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output. T/F
True
Expectations of inflation are assumed to be constant at each point on a given short-run Phillips Curve T or F
True
Expectations of inflation are assumed to be constant at each point on a given short-run Phillips curve. T/F
True
Gross domestic product (GDP) is the total market value of the final goods and services produced by an economy in a one year period
True
Households supply factors of production to business and are paid by business for doing so. The market where this interaction takes place is called the factor market. T/F
True
If a country has a comparative advantage in the production of a good, its resources are better suited to the production of that good than are the resources of other countries. T/F
True
In a market economy, society relies on the self-interest of individuals to determine what, how, and for whom to produce. (T/F)
True
In a market economy, society relies on the self-interest of individuals to determine what, how, and for whom to produce. T/F
True
Inflation redistributes income from people who do not raise their prices to people who do raise their prices. T/F
True
Money doesn't have to have any inherent value to function as a medium of exchange. True False
True
Nominal GDP can be equal to real GDP
True
Only marginal costs, not sunk costs, affect economic decisions if individuals are rational. (T/F)
True
Other things equal, the higher the reservation wage, the more likely one is to be unemployed T or F
True
Scarcity exists because economies cannot produce enough to meet the perceived desires of all individuals. T/F
True
Social and political forces affect the way in which the invisible hand works. T/F
True
The key to the equality of output and income is: A.) employee compensation. B.) profit. C.) business taxes. D.) transfer payments.
B.) profit.
During an economic contraction, automatic stabilizers: A.) reduce both budget surpluses and deficits. B.) reduce a budget surplus or increase a deficit. C.) reduce a budget deficit or increase a surplus. D.) increase both budget surpluses and deficits
B.) reduce a budget surplus or increase a deficit.
Crowding out would most likely occur when: A.) workers lose jobs as a result of anti-inflationary fiscal policies. B.) the federal government engages in bond sales to finance its budget deficit. C.) Congress enacts budget cuts to balance the budget. D.) tax receipts rise more slowly than anticipated, resulting in the need to cut government spending.
B.) the federal government engages in bond sales to finance its budget deficit.
Governments establish the laws that regulate the interaction between businesses and households but do not serve as actors in the economy themselves. T/F
False
Governments establish the laws that regulate the interaction between businesses and households, but do not serve as actors in the economy themselves. (T/F)
False
Holding money for the speculative motive is holding cash for unexpected events
False
If measurement errors did not exist, real per capita GDP would be an undeniably accurate measure of human welfare
False
If the principle of increasing marginal opportunity cost holds, the opportunity cost of producing each additional unit of a good should fall as production of that good rises. T/F
False
If the reserve ratio is .10, the money multiplied is equal to 5
False
If the reserve ratio is 0.10, the money multiplier is equal to 5. True False
False
In today's globalized economy, a U.S. worker's reservation wage tends to be lower than the reservation wage of many workers in developing countries. True False
False
Laissez-faire economists favor government intervention in the market process. (T/F)
False
Limited liability is a key advantage of partnerships and sole proprietorships over corporations.
False
Net exports is the key to the equality of aggregate expenditures and aggregate income
False
Nominal GDP can never be equal to real GDP. True False
False
Policy issues of business cycles are considered in a long-run framework (t/f)
False
Production possibility curves are upward-sloping because increased production of one good implies reduced production of other goods. T/F
False
Someone who believes in the individual responsibility framework believes that the standard measure of unemployment underestimates the level of unemployment. True False
False
Sound finance holds that government spending should be directed toward sound investment. True False
False
The 2008-2009 deficit stimulus spending by the federal government is an example of expansionary sound finance T or F
False
The 2008-2009 deficit stimulus spending by the federal government is an example of expansionary sound finance. True False
False
The Fed is the only formal and legal organization that can create money. True False
False
The Taylor Rule relates changes in the money supply to changes in interest rates. True False
False
The difference between the long-run and short-run frameworks is that the long-run framework focuses on demand while the short-run framework focuses on supply. (T/F)
False
The law of supply states that more of a good will be supplied the lower its price, other things constant. (T/F)
False
The long-run Phillips Curve shifts to the left or the right as expectations of inflation change T or F
False
The opportunity cost of undertaking an activity includes any sunk cost. (T/F)
False
The prices of assets are included in standard measures of inflation T or F
False
The sum of the number of employed persons and the number of unemployed persons equals the civilian non-institutional population
False
The terms business cycle and structural stagnation can be used interchangeably. (T/F)
False
The three tools of monetary policy are open market operations, setting prices, and setting the velocity of money T or F
False
To compute GDP, you must add up the value of all the goods and services produced in a country in a year. True False
False
Two nations with differing comparative advantages will be able to consume more if each produces the good for which the opportunity cost is highest and trades for the good for which opportunity cost is lowest. (T/F)
False
When quantity demanded is greater than quantity supplied, the resulting shortage causes the price to fall. (T/F)
False
A change in the price of carrots will cause a movement along the demand curve for carrots and a shift in the demand for substitute vegetables. T/F
True
A decrease in the federal funds rate is an indication that monetary policy is expansionary T or F
True
An increase in demand causes equilibrium price and quantity to rise, other things constant. (T/F)
True
An increase in demand causes equilibrium price and quantity to rise, other things constant. T/F
True
An increase in the federal funds rate is a signal that the Fed wants a tighter monetary policy. True False
True
Automatic stabilizers are government programs or policies that will counteract the business cycle without any new government action. True False
True
Cyclical unemployment is caused by fluctuations in economic activity
True
Cyclical unemployment is caused by fluctuations in economic activity. True False
True
Cyclical unemployment is caused by fluctuations in economic activity. (T/F)
True
Deciding what the distribution of income should be is an example of normative economics. (T/F)
True
Deciding what the distribution of income should be is an example of normative economics. T/F
True
Someone who believes in the social responsibility framework believes that the standard measure of unemployment underestimates the level of unemployment T or F
True
Suppliers will supply more of a good when the price of that good rises because the opportunity cost of not producing that good has risen. T/F
True
The Fed's duties include acting as a lender of last resort and supervising or regulating a variety of financial institutions. True False
True
The difference between a standard and an inverted yield curve is that when the yield curve is inverted, the longer-term bond pays a lower rate than a short-term bond T or F
True
The duration of unemployment rose significantly more during the 2008/09 recession relative to previous recessions. True False
True
The financial sector channels saving back into the spending stream
True
The financial sector channels saving back into the spending stream. True False
True
The production possibility model can be used to demonstrate the concept of opportunity cost. (T/F)
True
When news reports state that inflation has increased, they could be referring to a change in the GDP deflator. True False
True
Your visit to the dentist, college tuition, and any commissions earned by a used car salesman are all included in GDP. True False
True
By law, a commercial bank is allowed to lend out of all its: A) deposits B) excess reserves C) required reserves D) checkable deposits
B
Financing expansionary fiscal policy by increasing the deficit does not generally affect interest rates. True False
False
If inflation is highly volatile A) mortgage contracts will likely be more complicated B) mortgage contracts will likely be less complicated C) there will be no mortgage contracts D) there will be no effect on mortgage contracts.
A
If real income increases by 4 percent and the price level increases by 3 percent, nominal income must: A) increase by 7 percent. B) increase by 1 percent. C) decrease by 1 percent. D) decrease by 7 percent.
A
England has a relatively cool and cloudy climate that is ill-suited for grape growing. It can produce 200 units of wine for every 400 units of cloth. Portugal, in contrast, has a relatively warm and sunny climate that is good for growing grapes. It can produce 200 units of wine for every 100 units of cloth. Which country has the higher opportunity cost of producing cloth? A) Portugal: 2 units of wine for every unit of cloth B) England: 2 units of wine for every unit of cloth C) Portugal: ½ unit of wine for every unit of cloth D) England: ½ unit of cloth for every unit of wine
A
A policy rule that concludes that a particular course of action is preferable is known as a(n): A) precept. B) theorem. C) insight. D) policy.
A
According to Adam Smith, individuals are directed to do things by: A) Self interest B) Corporate management C) government policy D) educational system
A
According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by: A) their self interest. B) corporate management. C) government policy. D) the educational system.
A
According to the law of demand, an increase in the price of baseball trading cards causes: A) people to buy fewer trading cards. B) people to buy more trading cards. C) the scarcity of baseball trading cards to increase. D) baseball trading cards to grow in abundance.
A
According to the text, if individuals base their expectations on economic models we say that their expectations are: A) rational B) historical C) adaptive D) extrapolative
A
Adam Smith argued that great specialization are likely to: A) improve standards of living B) reduce standards of living C) reduce worker productivity D) replace workers with machines
A
Adam Smith argued that greater specialization and division of labor are likely to: A) improve standards of living. B) reduce standards of living. C) reduce worker productivity. D) replace workers with machines, resulting in massive unemployment.
A
An economic force given relatively free rein by society to work through the market is: A) a market force. B) a social force. C) a price mechanism. D) a political force.
A
An economic model: A) applies economic theory to understand real-world events. B) is so abstract that it cannot be applied to real-world events. C) can be used only to understand free markets. D) is an action taken to influence the course of economic events.
A
Asset inflation has a danger of: A) obscuring goods inflation B) accommodating contractionary monetary policy C) reducing the productive capacity of assets D) leading to a misallocation of resources to risky investments
A
Banks can borrow reserves from each other through: A) Fed funds market B) FOMC C) open market purchases D) secondary reserves
A
Classical economists are generally associated with: A) laissez-faire B) support of inflation C) activist policy D) price controls
A
Economic reasoning would argue that there is an opportunity cost to: A) all choices. B) more choices. C) only choices that involve money. D) only choices that do not involve money.
A
Given the production possibility curve was shown, the opportunity cost of listening to each additional CD when moving from point B to point A is on average: (#6) A) ½ article. B) 1 article. C) 2 articles. D) 3 articles.
A
If the economy falls into a recession, automatic stabilizers will cause: A) tax receipts to fall and government spending to rise B) tax receipts to rise and government spending to fall C) both tax receipts and government spending to rise D) both tax receipts and government spending to fall
A
In election campaigns, presidents often promise more of everything (that is, more guns and more butter). What would help those elected president fulfill that promise? A) The economy becomes more efficient. B) The United States limits imports into the country. C) Illegal immigration into the United States is severely limited. D) A minimum wage bill is passed.
A
One of the basic principles of economics is that trade makes A)Everyone better off B)Everyone worse off C)Some people better off and others worse off D)None of the above
A
People have become more concerned about the negative health effects of eating carbohydrates and fat. Considering these effects only, which of the following best describes the likely effect of this trend on the market for high-carb, high-fat snacks? A) Demand shifted to the left leading to a decline in equilibrium price and quantity. B) Quantity demanded fell leading to a decline in equilibrium price and quantity. C) Supply shifted to the left leading to a rise in equilibrium price and a decline in equilibrium quantity. D) Demand and supply both shifted to the left leading to a decline in equilibrium price and quantity.
A
Policy makers A) like inflation because it allows individuals to maintain illusions B) dislike inflation because it allows individuals to maintain illusions C) like inflation because it makes society richer D) dislike inflation because it redistributes income
A
Private property rights: A) are essential elements of a market economy. B) do not need to be enforced in market economies. C) must be established before a socialist economy can function properly. D) ensure an equitable distribution of income in market economies.
A
Relative to corporations, sole proprietorships are: A) more numerous and smaller in size. B) less numerous and smaller in size. C) more numerous and larger in size. D) less numerous and larger in size.
A
Technological change can result in: A.) structural unemployment. B.) natural unemployment. C.) cyclical unemployment. D.) seasonal unemployment.
A
Technological change is most likely to affect: A) structural unemployment B) frictional unemployment C) cyclical unemployment D) seasonal unemployment
A
The PPC shows the ________ combination of goods and services a firm can produce A)Possible and efficient B)Possible and inefficient C)Impossible and efficient D)Impossible and inefficient
A
The Phillips curve represents a relationship between: A) inflation and unemployment B) inflation and real income C) money supply and interest rates D) money supply and unemployment
A
The Phillips curve represents a relationship between: A) inflation and unemployment. B) inflation and real income. C) money supply and interest rates. D) money supply and unemployment.
A
The group that is comprised of five presidents of Fed regional banks and seven Fed governors that gathers around a table to discuss whether to increase interest rates is the: A) Federal Open Market Committee. B) Federal Depository Insurance Corporation. C) Federal Advisory Council. D) National Federal Reserve Bank.
A
The institutionalist theory of inflation differs from that of the quantity theory by focusing on: A) how firms determine wages and prices. B) the equation of exchange. C) the rate of growth in the money supply. D) the institutions that determine how the money supply is determined.
A
The law of supply states that, other things equal, as the price of a good goes: A) up, the quantity supplied goes up. B) up, the supply goes down. C) down, the quantity supplied goes up. D) down, the supply goes down.
A
The point at which the supply curve and the demand curve intersect is called: A) equilibrium, because quantity demanded equals quantity supplied so there is no tendency for price to change. B) equilibrium, because quantity demanded exceeds quantity supplied so there is a shortage. C) equilibrium, because quantity supplied exceeds quantity demanded so there is a surplus. D) irrelevant, because real-world prices never reach this point.
A
The table below shows how the marginal benefit of pizza dinners varies for Luigi with the number consumed per month. (#3) Suppose the price per dinner is $4.99 and accurately reflects the marginal cost of the dinners to Luigi. Assuming that Luigi is rational, he will: A) not consume any pizza dinners this month. B) consume one pizza dinner this month. C) consume two pizza dinners this month. D) consume three pizza dinners this month.
A
The unemployment that occurs when people first enter the labor force or when they are in the process of changing jobs, is called: A) frictional unemployment B) cyclical unemployment C) natural unemployment D) structural unemployment
A
Trade based on comparative advantage benefits: A) consumers in all countries. B) consumers in some countries but hurts consumers in other countries. C) neither producers nor consumers. D) producers in all countries but not consumers.
A
Two countries that specialize their production along the lines of comparative advantage and then trade with each other will be able to: A) both produce and consume more B) produce more and consume less C) produce less and consume more D) both produce and consume less
A
Two countries that specialize their production along the lines of comparative advantage and then trade with each other will be able to: A) both produce and consume more. B) produce more and consume less. C) produce less and consume more. D) both produce and consume less.
A
United States has comparative advantage in goods that: A) require creativity and innovation B) artistic and well crafted C) mass-produced D) luxury goods
A
Using Okun's rule of thumb, if trend growth is 3 percent and the unemployment rate rises by 2 percentage points, output would be expected to have: A.)fallen by 1 percentage point B.) risen by 1 percentage point. C.) fallen by 2 percentage points. D.) risen by 2 percentage points.
A
We need to privatize the social security program in the State of Kansas is a A)Normative statement B)Positive statement C)Social statement D)Market statement
A
When airlines were deregulated, airfares declined by 30 percent. Deregulation is an example of political forces: A) letting the market move toward equilibrium, reducing excess supply. B) letting the market move toward equilibrium, reducing excess demand. C) making the market move away from equilibrium, creating excess supply. D) making the market move away from equilibrium, creating excess demand.
A
When inflation is unexpected it tends to hurt A) people who save money in financial institutions B) people who borrow money from financial institutions. C) businesses who borrow money from financial institutions. D) people with flexible income.
A
When the Fed sells bonds, it: A) reduces reserves and federal funds rate increases B) increases reserves and federal funds rate decreases C) reduces reserves and federal funds rate decreases D) increases reserves and federal funds rate increases
A
When the government runs a deficit, the interest rate tends to: A) rise B) fall C) remain unchanged D) rise or fall, depending on how the deficit is financed
A
Which age group tends to have the highest unemployment rates? A.) 16-19 year olds B.) 20-24 year olds C.) 25-54 year olds D.) 65 and over
A
Which of the following factors will help the United States regain comparative advantages in industries in which it has lost comparative advantages? A) The value of the U.S. dollar falls. B) The value of the U.S. dollar rises. C) The United States imports more goods. D) Wages in the United States rise.
A
Which of the following is not held constant as you move along the demand curve? A) The price of that good B) The price of other goods C) The incomes of consumers D) The preferences of consumers for the good
A
Which of the following is not likely to change the supply of personal computers? A) An increase in consumers' incomes B) A technological breakthrough that makes it much less costly to produce computer chips C) A decrease in the wage paid to electrical engineers D) An increase in taxes on computer chips paid by producers
A
Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value: A.) adds nothing to GDP. B.)increases GDP by $25,000. C.) increases GDP by $100,000. D.) increases GDP by $125,000.
A.) adds nothing to GDP.
The laissez-fair policy prescription to eliminate unemployment was to:
A. eliminate labor unions and government policies that hold real wages too high
Refer to the table below. What is the economy's gross domestic product? (#2.) A.) $10.5 trillion B.) $11.1 trillion C.) $11.7 trillion D.) $12.3 trillion
A.) $10.5 trillion
Which is not something the Fed can do directly to conduct monetary policy? A.) Change the exchange rate B.) Change the reserve requirement C.) Change the discount rate D.) Execute open market operations
A.) Change the exchange rate
Which of the following will be affected if consumers take money out of checking accounts to pay their credit cards? A.) M1 B.) M2 C.) M3 D.) M4
A.) M1
Which of the following Fed policies would help the economy out of a recession? A.) Open market purchases of government securities B.) Open market sales of government securities C.) An increase in the discount rate D.) An increase in reserve requirements
A.) Open market purchases of government securities
The income tax is: A.) an automatic stabilizer because income tax revenues rise as income increases, slowing an economic expansion. B.) an automatic stabilizer because income tax revenues rise as income increases, accelerating an economic expansion. C.) an automatic stabilizer because income tax revenues fall as income increases, accelerating an economic expansion. D.) not an automatic stabilizer.
A.) an automatic stabilizer because income tax revenues rise as income increases, slowing an economic expansion.
The largest expenditure component of GDP is: A.) consumption. B.) investment. C.) net exports. D.) government spending.
A.) consumption.
Cyclical unemployment is defined as unemployment that results from: A.) fluctuations in economic activity. B.) structural changes in the economy. C.) changes in technology. D.) the aging of the population.
A.) fluctuations in economic activity
The target rate of unemployment can be affected by all of the following except the: A.) level of output. B.) population's age structure. C.) social and institutional structure. D.) relationship between inflation and unemployment.
A.) level of output.
The Federal Open Market Committee: A.) makes decisions that affects excess reserves available to banks. B.) reports directly to Congress. C.) makes decisions that influence the nation's fiscal policy. D.) determines who may buy and sell government bonds.
A.) makes decisions that affects excess reserves available to banks.
According to most economists, fiscal policy is: A.) not an effective tool for fine tuning the economy. B.) least useful in a serious economic crisis. C.) always ineffective because of crowding out. D.) effective only when potential output is perfectly known.
A.) not an effective tool for fine tuning the economy.
The fact that more women have entered the labor force has: A.) raised the target rate of unemployment B.) lowered the target rate of unemployment C.) raised cyclical unemployment D.) lowered cyclical unemployment
A.) raised the target rate of unemployment
The concept of fiscal policy refers to the: A.) running of a deficit or surplus to affect the level of output in the economy. B.) changing of interest rates to affect the level of output in the economy. C.) management of exchange rates to affect the trade deficit in the economy. D.) setting of wage policies by institutions to affect spending in the economy.
A.) running of a deficit or surplus to affect the level of output in the economy.
Because automatic stabilizers lower transfer payments and raise tax receipts as an economy recovers from a recession, they: A.) slow down the pace of an economic recovery. B.) increase the pace of an economic recovery. C.) do not affect the pace of an economic recovery. D.) accelerate the recovery from a recession until inflation starts to develop, at which point they slow the recovery
A.) slow down the pace of an economic recovery.
Technological change is most likely to affect: A.) structural unemployment. B.) frictional unemployment. C.) cyclical unemployment. D.) seasonal unemployment.
A.) structural unemployment.
The Federal Reserve Bank is the U.S. central bank: A.) whose liabilities serve as cash in the United States. B.) whose assets serve as cash in the United States. C.) who holds, in reserve, all financial assets of banks. D.) who holds, in reserve, all financial liabilities of banks.
A.) whose liabilities serve as cash in the United States.
A monetary policy that reduces both real and nominal income: A) must be expansionary B) must be contractionary C) cannot be expansionary or contractionary D) could be expansionary or contractionary
B
A primary goal of the International Monetary Fund (IMF) is to: A) promote economic negotiations and cooperation among industrialized countries. B) work out repayment plans for developing countries with large international debts. C) protect the interests of the United States abroad. D) negotiate trade agreements between nations.
B
According to the Ricardian equivalence theorem, government deficits do not affect output because people: A) save more when government deficits decrease B) save more when government deficits increase C) consume more when government deficits increase D) do not change consumption nor savings
B
According to the quantity theory of money, if the monetary authorities allow the money supply to grow at a rate of 6 percent in an economy that is growing by 2 percent in real terms, then inflation will be: A) 2 percent. B) 4 percent. C) 6 percent. D) 8 percent
B
According to the quantity theory: A) unemployment is everywhere and always a monetary phenomenon. B) inflation is everywhere and always a monetary phenomenon. C) the equation of exchange does not hold true. D) real output is everywhere and always a monetary phenomenon.
B
As the economy moves to the right of the long-run Phillips curve inflationary: A) pressures build. B) pressures subside. C) pressures remain constant D) expectations rise.
B
Before the financial crisis of 2008, A) the 2.5% inflation target was seen as a lower bound B) the 2.5% inflation target was seen as an upper bound C) the 2.5% inflation target was seen as a precise target D) inflation was not seen as a target.
B
Businesses fail because: A) they follow the principle of consumer sovereignty too closely. B) the invisible hand determines that they are not producing something that is socially valuable. C) they earn excessive profits. D) entrepreneurship is present.
B
Countries gain from trade by producing: A) goods at highest opportunity cost B) goods at lowest opportunity cost C) middle of PPC D) all goods equally
B
Economic decline happens when the PPC shifts A)Outward B)Inward C)Outside D)None of the above
B
Economics is primarily: A) a normative science. B) an observational science. C) a laboratory science. D) a natural science.
B
Fiscal policy would be more effective if: A) potential income was unknown B) the government could change taxes and expenditures rapidly C) the size of the government debt didn't matter D) crowding out occurred more often
B
Governments can make trading easier and more beneficial by: A) establishing externalities. B) limiting private restrictions on trade. C) setting quotas. D) providing merit goods.
B
If inflation increases unexpectedly, then: A) borrowers tend to lose B) lenders tend to lose C) lenders and borrowers tend to gain D) neither borrowers nor lenders tend to lose
B
If the PPC is linear, then the opportunity cost of producing a good or service is A)Decreasing B)Constant C)Increasing D)Varies
B
In a market economy: A) government owns the means of production so that it can produce what is in society's best interest. B) businesses design their plans to maximize their profit and the market is relied upon to see that individual self-interest is consistent with society's interest. C) workers are directed by government planning boards to produce what is in society's best interest. D) government sets prices to make necessities affordable because it is in society's best interest to make necessities affordable.
B
Issues of growth are generally considered in: A) the short-run framework. B) the long-run framework. C) both the short-run and the long-run frameworks. D) neither the short-run nor the long-run frameworks.
B
Keynesian economists tend to focus analysis on: A) long run B) short run C) aggregate supply D) economic growth
B
Labor force is _________ workers in the economy A) Employed + laid off B) Employed + unemployed C) Employed + underemployed D) Employed + not employed
B
Many drugs are illegal in the United States. Despite this law, illegal drugs are usually available at a price many times higher than they would be if the drugs weren't illegal. The high price of illegal drugs is an example of: A) the market affecting political forces. B) political forces affecting the market. C) the failure of the market. D) the failure of political forces.
B
Marginal analysis is involving comparing A)MC and AC B)MB and MC C)MB and AC D)MC and VC
B
Most economies today are: A) pure market economies. B) differentiated primarily by the degree to which they depend on markets. C) differentiated primarily by who owns the means of production. D) socialist.
B
One reason goods inflation is preferred by policymakers is that it A) keeps the economy away from asset inflation B) keeps the economy away from asset deflation C) makes people richer D) makes people see the importance of monetary policy
B
Other things equal, a rise in interest rates can be expected to: A) increase quantity of investment B) decrease quantity of investment C) have no effect on quantity of investment D) increase equilibrium income
B
Potential output: A) purely a physical phenomenon B) related to the long-term growth trend C) requires government expenditures D) requires the purchase of new equipment
B
Refer to the graph below. Suppose that the opportunity cost of producing 10 chickens is always 8 turkeys. Given this, the relevant production possibility curve must be: (#5) A) I B) II C) III D) IV
B
Sunk costs: A) are essential parts of economic decisions. B) are irrelevant to economic decisions. C) should be considered, but only when marginal cost is less than marginal benefit. D) should be considered only when there is no information about marginal cost and marginal benefit.
B
The basic principle in economic studies is: A)Trade-off B)Scarcity C)Money D)Efficiency
B
The effects of asset price inflation and asset price deflation generally: A) even out. B) have unequal effects on the economy. C) are unrelated. D) are addressed by policymakers.
B
The equation of exchange is expressed as: A) MR = PQ B) MV = PQ C) MPP = P D) MR = MC
B
The explanation for the law of demand involves A) suppliers' ability to substitute inputs. B) consumers' ability to substitute different goods. C) the government's ability to set prices. D) the market's ability to equate supply and demand.
B
The largest source of household income in the United States is: A) stock dividends. B) wages and salaries. C) interest earnings. D) rental income.
B
The opportunity cost of the good on the x-axis is the ____ of the PPC A)Height B)Slope C)y-intercept D)inverse of the slope
B
The statement, "because the invisible hand allocates resources efficiently, economies ought to minimize government interference" is an example of: A) an economic theorem. B) an economic precept. C) a natural experiment. D) efficiency.
B
The term efficiency involves achieving a goal as: A) quickly as possible B) cheaply as possible C) well as possible D) steadily as possible
B
Unemployment caused by recession is called: A.)frictional unemployment. B.) cyclical unemployment. C.) natural unemployment. D.) structural unemployment.
B
Up through the early decades of the 20th century, many countries remained closed to trade, charging high tariffs or imposing strict quotas on imported goods. In 1948, 23 countries joined the General Agreement on Tariffs and Trade (GATT), which sought to set out rules for trade and enhance future negotiations. The reduction in tariffs as a result of GATT probably brought about: A) a decrease in consumption. B) an increase in consumption. C) no change in consumption. D) a reduction in domestic production.
B
What are net exports using the table shown? (#15) A) 170 B) 200 C) 450 D) 650
B
When the government runs a deficit it must: A) buy bonds to finance the deficit B) sell bonds to finance the deficit C) decrease the money supply to finance the deficit D) raise taxes immediately
B
Which group has ultimate control over the U.S. economy? A) Business B) Households C) Multinationals D) Government
B
Which of the following is a stock concept? A) Income B) Wealth C) Rent D) Expenditures
B
Which of the following is not one of the three central coordination problems of the economy given in the book? A) What B) Wether C) For whom D) How
B
The secular trend growth rate in the United States is approximately: A) 1 to 1.5 percent per year. B) 2.5 to 3.5 percent per year. C) 5 to 5.5 percent per year. D) 7 to 7.5 percent per year.
B) 2.5 to 3.5 percent per year.
If U.S. real GDP increases by 3.3 percent, we can infer that the United States experiences: A) a recession. B) an upturn. C) a depression. D) a trough.
B) an upturn.
Unemployment caused by people entering the job market and people quitting a job just long enough to look for and find another one is called: A) structural unemployment. B) frictional unemployment. C) cyclical unemployment. D) are not counted in the unemployment rate.
B) frictional unemployment.
A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may increase lending by: A.) $1,000. B.) $9,000. C.) $10,000. D.) $11,000.
B.) $9,000.
If the labor force is 90 million and the number of people who are looking for jobs but cannot find them is 9 million, the unemployment rate is: A.) 9 percent. B.) 10 percent. C.) 81 percent. D.) 91 percent.
B.) 10 percent.
If there are only two goods in the economy, one whose price rises by 3% and one by 5%, it is possible that inflation is: A.) 3% B.) 4% C.) 5%. D.) 7%
B.) 4%
The body that directly oversees the 12 regional Federal Reserve banks is the: A.) Federal Open Market Committee. B.) Board of Governors. C.) U.S. Congress. D.) Federal Advisory Council.
B.) Board of Governors.
If U.S. net exports are positive, then U.S.: A.) GDP is less than the sum of consumption, investment, and government purchases. B.) GDP exceeds the sum of consumption, investment, and government purchases. C.) imports must exceed U.S. exports. D.) GDP equals the sum of consumption, investment, and government purchases.
B.) GDP exceeds the sum of consumption, investment, and government purchases.
Why doesn't the minimum job proposal provide output directly useful to the marketplace? A.) The monitoring costs of such a job would be too high. B.) If it did, it might be replacing jobs otherwise provided by the market. C.) It would provide training to participants better provided by other programs. D.) To compete with the Federal minimum wage of $7.25 per hour.
B.) If it did, it might be replacing jobs otherwise provided by the market.
Which of the following do policy makers tend to target when setting monetary policy? A.) Money supply B.) Interest rates C.) Reserves D.) Exchange rates
B.) Interest rates
Because reducing both unemployment and inflation simultaneously are conflicting goals: A.) there is a policy that will allow policymakers to achieve either objective. B.) aggregate demand policy will allow policymakers to achieve one of these objectives, but not both. C.) aggregate demand policy will allow policymakers to achieve both objectives, but only if it is expansionary. D.) aggregate demand policy will allow policymakers to achieve both objectives, but only if it is contractionary.
B.) aggregate demand policy will allow policymakers to achieve one of these objectives, but not both.
GNP is the: A.) aggregate output of the citizens and businesses of an economy in a one year period. B.) aggregate final output of the citizens and businesses of an economy in a one year period. C.) total market value of all goods and services produced in an economy in a one year period . D.) total market value of all final goods and services produced in an economy in a one year period.
B.) aggregate final output of the citizens and businesses of an economy in a one year period.
Suppose the money multiplier is 5. If banks hold excess reserves, the required reserve ratio must: A.) be less than 0.10. B.) be less than 0.20. C.) equal 0.20. D.) be greater than 0.20.
B.) be less than 0.20.
A commercial bank is a financial institution that: A.) prints and distributes currency. B.) borrows from and lends to individuals and businesses. C.) holds the savings of individuals for a fee until they need them. D.) determines the value of currency.
B.) borrows from and lends to individuals and businesses.
Bank reserves are: A.) real assets deposited at banks. B.) cash and deposits a bank keeps on hand or at the central bank. C.) loans issued by banks deposited into checking accounts. D.) checks held by depositors.
B.) cash and deposits a bank keeps on hand or at the central bank.
Frictional unemployment: A.) refers to unemployment caused by friction between labor and management. B.) comes from people entering the labor force and changing jobs. C.) refers mainly to unemployment resulting from fluctuations in output. D.) is undesirable and should be eliminated at all costs.
B.) comes from people entering the labor force and changing jobs.
Refer to the graph shown. Monetary policy that shifts the AD curve from AD0 to AD2 is (#9.): A.) expansionary. B.) contractionary. C.) neither expansionary nor contractionary since it does not affect output. D.) neither expansionary nor contractionary since it does not affect inflation.
B.) contractionary
When the Fed sells bonds, the money supply: A.) expands. B.) contracts. C.) sometimes rises and sometimes falls. D.) Selling bonds does not affect the money supply.
B.) contracts.
An expansionary monetary policy is most likely to: A.) increases interest rates, raises investment, and increases income. B.) decreases interest rates, raises investment, and increases income. C.) increases interest rates, reduces investment, and decreases income. D.) decreases interest rates, reduces investment, and decreases income.
B.) decreases interest rates, raises investment, and increases income
If depreciation is zero, then net domestic product: A.)exceeds gross domestic product. B.) equals gross domestic product. C.) is less than gross domestic product. D.) cannot be defined.
B.) equals gross domestic product.
By law, a commercial bank is allowed to lend out of all its: A.) deposits. B.) excess reserves. C.) required reserves. D.) demand (checkable) deposits.
B.) excess reserves.
When the Fed decreases the reserve requirement, the money supply is expected to: A.) expand and the money multiplier contract. B.) expand, as is the money multiplier. C.) contract, as is the money multiplier. D.) contract and the money multiplier expand.
B.) expand, as is the money multiplier.
If output is falling, a procyclical fiscal policy will result in: A.) higher taxes and/or increased government spending. B.) higher taxes and/or decreased government spending. C.) lower taxes and/or increased government spending. D.) lower taxes and/or decreased government spending.
B.) higher taxes and/or decreased government spending.
The U.S. produces and sells millions of types of products. To add them up to a single aggregate, each good is weighted by its: A.) cost of production. B.) market price. C.) utility to consumers. D.) contribution to corporate profits.
B.) market price.
Government expenditures for Social Security and unemployment insurance are, for GDP accounting purposes, considered: A.) transfers, and are included in government spending as part of GDP. B.) transfers, and are not included in government spending as part of GDP. C.) purchases, and are included in government spending as part of GDP. D.) purchases, and are not included in government spending as part of GDP.
B.) transfers, and are not included in government spending as part of GDP.
A cost of inflation is that it: A) makes everyone poorer B) makes the poor poorer and the rich richer C) reduces the informational content of prices D) it raises real interest rates
C
A period of protracted slow growth and high unemployment is called: A) deflation B) cyclical stagnation C) structural stagnation D) stagflation
C
A socialist economy in theory: A) requires private ownership of property. B) is coordinated by the invisible hand. C) expects people to be altruistic. D) expects people to be selfish.
C
A theorem is: A) the application of models combined with judgment. B) a policy rule that concludes that a particular course of action is preferable. C) a proposition that is logically true based on the assumptions of a model. D) a set of equations that define a model.
C
According to the law of one price, A) it is illegal to pay different people different amounts for the same work. B) it is illegal to charge different people different amounts for the same product. C) competition, combined with transferable goods and resources, drives the prices of similar goods toward equality. D) competition, combined with inherent advantages, drives the prices of similar goods toward equality.
C
According to the text, if individuals base their expectations on the past we could say that their expectations are: A) rational. B) historical. C) adaptive. D) regressive.
C
An economic principle: A) should be used to make every individual decision. B) generally is stated as a normative statement. C) can be combined with knowledge of economic institutions to make policy proposals. D) is an action taken to influence the course of economic events.
C
Applying the concept of opportunity cost to the pollution of a lake, an economist probably would conclude that: A) all pollution in the lake should be eliminated regardless of cost. B) no pollution in the lake should be eliminated regardless of benefit. C) pollution should be eliminated as long as the benefit from a cleanup exceeds the opportunity cost. D) pollution should be eliminated as long as the opportunity cost of a cleanup exceeds the cost of the resources required for the cleanup.
C
Asset inflation: A) is equal to goods inflation. B) is the rise in the physical increase in assets. C) is the rise in asset prices that exceed the rise in the real value of assets. D) does not occur when the economy faces globalization because prices are capped.
C
Capitalism and socialism have not existed forever. Capitalism came into existence in the: A) mid-1800s and socialism came into existence in the early 1900s. B) early 1900s and socialism came into existence in the mid-1800s. C) mid-1700s and socialism came into existence in the early 1900s. D) early 1900s and socialism came into existence in the mid-1700s
C
Crowding out will be less likely to occur if: A) interest rates rise when the budget deficit increases B) interest rates fall when the budget deficit decreases C) business investment does not depend on interest rates D) business investment depends on interest rates
C
Discount rate is interest rate: A) commercial banks charge their customers B) Fed charges on loans to individuals C) Fed charges on loans to commercial banks D) commercial banks charge one another for overnight loans
C
Evan can grow both roses and carnations in his garden. His production possibility table is shown below. If he is currently producing 110 roses, his opportunity cost of producing 40 more roses is: Number of Roses Number of Carnation 0 155 60 135 110 109 150 78 180 0 A) 20 carnations B) 26 carnations C) 31 carnations D) 78 carnations
C
If Countries X and Y face the production possibility curves A and B, respectively, Country Y has a comparative advantage in the production of: (#8) A) neither agricultural goods nor industrial goods. B) both agricultural goods and industrial goods. C) agricultural goods only. D) industrial goods only.
C
Increasing marginal opportunity cost means that the production possibility curve is: A) bowed in so that for every additional unit of one good given up, you get fewer and fewer units of the other good. B) bowed in so that for every additional unit of one good given up, you get more and more units of the other good. C) bowed out so that for every additional unit of a good given up, you get fewer and fewer units of the other good. D) bowed out so that for every additional unit of one good given up, you get more and more units of the other good.
C
Macroeconomics is: A) the study of individual choice and how that choice is influenced by economic forces. B) the study of the pricing policies of firms and the purchasing decisions of households. C) the study of aggregate economic relationships. D) an analysis of economic reality that proceeds from the parts to the whole.
C
Market failures: A) can always be corrected through government action. B) can never be corrected through government action. C) are sometimes made worse by government failures. D) lead to a desired allocation of resources.
C
One advantage of a sole proprietorship over a corporation is: A) limited liability. B) the ability to share work and risks. C) ease of formation. D) greater ability to obtain funds.
C
One of the duties of the Fed is to: A) change demand for money B) set market interest rate C) offer financial advising to the government D) offer financial advising to the public
C
Per capita output would be certain to increase if: A) both real output and population increase B) both real output and population decrease C) real output increases and population decreases D) real output decreases and population increases
C
Refer to the graphs shown. The arrow that best shows an increase in supply is: (#11) A) W B) X C) Y D) Z
C
Refer to the graphs shown. The relevant market is corn. The impact of a poor corn harvest on the market for corn would most likely be demonstrated by which graph? (#12) A) a B) b C) c D) d
C
State and local governments do not receive income directly from which source? A) Property taxes B) Sales taxes C) Social security taxes D) Local income taxes
C
Suppose OPEC announces that it will increase production. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the: A) demand curve shifting to the right. B) demand curve shifting to the left. C) supply curve shifting to the right. D) supply curve shifting to the left.
C
The Governors of the Fed, appointed for: A) 5 years B) 10 years C) 14 years D) 17 years
C
The assumption that people are _________ is one of the basic assumptions in economic studies A)Emotional B)Generous C)Rational D)Smart
C
The effect of higher gasoline prices is most likely to: A) increase the demand for hybrid cars and increase the demand for the gas guzzler Hummer. B) decrease the demand for hybrid cars and decrease the demand for the gas guzzler Hummer. C) increase the demand for hybrid cars and decrease the demand for the gas guzzler Hummer. D) decrease the demand for hybrid cars and increase the demand for the gas guzzler Hummer.
C
The marginal benefit from consuming another unit of a good: A) must equal the marginal cost or the unit will not be consumed. B) must be less than the marginal cost or the unit will not be consumed. C) equals the increase in total benefits from consuming the unit. D) equals the total benefit obtained from the consumption of all prior units.
C
The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-shirt reflects its marginal cost to Mary and Mary uses economic reasoning, she: A) will sell the T-shirts she has to others who are willing to pay $10. B) cannot gain by buying another T-shirt. C) will buy another T-shirt this month. D) will not buy a T-shirt this month.
C
The principle of increasing marginal opportunity cost holds in which of the following cases? A) All inputs are equally adaptable to the production of all goods. B) The production possibility curve is a downward-sloping straight line. C) Some inputs are better for producing particular goods. D) Each input can be used to produce only one good.
C
The problem portrayed by the short-run Phillips curve is that: A) unemployment tends to increase when prices are rising. B) changes in the composition of the labor force tend to increase the natural rate of unemployment. C) inflation tends to increase when unemployment falls. D) stagflation is unavoidable.
C
The theoretical proposition that government deficits do not affect the level of output because individuals realize that they have to pay the deficits in the future and therefore increase their savings is called: A) purchasing power parity. B) functional finance. C) the Ricardian equivalence theorem. D) sound finance.
C
To graphically demonstrate the principle of increasing marginal opportunity cost, the production possibility curve must be: A)flat B)straight C)bowed out D)bowed in
C
Using fiscal policy to stabilize the economy is difficult because: A) potential income is known. B) the effects of policy changes is known with certainty. C) there are time lags involved in the use of fiscal policy. D) the size of the government debt doesn't matter.
C
When the wage rate paid to labor is above equilibrium, the: A) supply of labor increases. B) demand for labor decreases. C) number of workers seeking jobs exceeds the number of jobs available. D) number of jobs available exceeds the number of workers seeking jobs.
C
Which of the following cannot be determined by using a production possibility table? A) What combination of outputs can be produced B) How much less of one output must be produced if more of another output is produced C) What combination of outputs is best D) How much output can be produced from a given level of inputs
C
Which of the following has been an effect of globalization and a large trade deficit? A) Increased wages in the tradable sector B) Increased employment in the tradable sector C) Decreased employment in the tradable sector D) Increased wages in the immigrant sector
C
Which of the following is an automatic stabilizer? A) Military expenditures B) Social Security benefits C) Unemployment compensation D) Property taxes
C
Which of the shifts explains what would happen to the production possibility curve if restrictions were imposed on tuna fishing? (#7) A) I B) II C) III D) IV
C
Which statement best summarizes the invisible hand theorem? A) Government policies direct people's selfish desires (tempered by social and economic forces) to the common good. B) Cultural norms direct people's selfish desires (tempered by political and economic forces) to the common good. C) Markets direct people's selfish desires (tempered by political and social forces) to the common good. D) Social, political, and economic forces act against people's selfish desires to promote the common good.
C
If the U.S. money supply increases from $7.6 trillion to $8.3 trillion. If there is zero real economic growth, and velocity stays constant, then according to the quantity theory of money, the U.S. inflation rate during this period would be: A) 3 percent. B) 6 percent. C) 9 percent. D) 12 percent.
C)
The graph indicates that as more eggs are produced, the marginal opportunity cost of: (#13) A)both eggs and rye increases. B) eggs increases while the marginal opportunity cost of rye remains constant. C) eggs increases while the marginal opportunity cost of rye decreases. D) eggs decreases while the marginal opportunity cost of rye remains constant.
C)
The interest rate is the price paid for the use of a: A.) real liability. B.) real asset. C.) financial liability. D.) financial asset.
D.) financial asset.
A period of protracted slow growth and high unemployment is called: A) deflation B) cyclical stagnation. C) structural stagnation. D) stagflation
C) structural stagnation.
Money can be many things, but it is not: A.) a financial liability. B.) a financial asset. C.) liquid. D.) illiquid.
D.) illiquid.
Refer to the following table (#4) The sum of investment and consumption in this economy is: A.) $3.6 trillion. B.) $3.9 trillion. C.) $4.1 trillion. D.) $6.0 trillion.
C.) $4.1 trillion.
Okun's rule of thumb states that a: A.) 2 percentage point rise in the unemployment rate will tend to be associated with a 1 percent fall in output from its trend and vice versa. B.) 2 percentage point rise in the unemployment rate will tend to be associated with a 1 percent rise in output from its trend and vice versa. C.) 1 percentage point rise in the unemployment rate will tend to be associated with a 2 percent fall in output from its trend and vice versa. D.) 1 percentage point rise in the unemployment rate will tend to be associated with a 2 percent rise in output from its trend and vice versa.
C.) 1 percentage point rise in the unemployment rate will tend to be associated with a 2 percent fall in output from its trend and vice versa.
What is exchanged in the financial sector? A.) Money only B.) Goods and services C.) All financial assets D.) Only assets with a money price
C.) All financial assets
In what category is the purchase of a computer by a business in national income accounting? A.) It is ignored because computers are considered intermediate goods—an input in the production of other goods and services B.) It is considered consumption C.) It is a form of investment spending D.) It is a form of savings
C.) It is a form of investment spending
Which of the following is not one of the functions of money? A.) Medium of exchange B.) Unit of account C.) Standard of well-being D.) Store of wealth
C.) Standard of well-being
Although rarely used, which of the following is an instrument the Fed has to conduct monetary policy? A.) The corporate income tax B.) The tax on unearned income C.) The discount rate D.) The interest rate on Treasury bonds
C.) The discount rate
What two numbers do you need to compute the unemployment rate? A.) The number of unemployed persons and the size of the population B.) The number of unemployed persons and the number of discouraged workers C.) The number of employed persons and the number of unemployed persons D.) The number of persons in the labor force and the size of the population
C.) The number of employed persons and the number of unemployed persons
Central banks in developing countries: A) do not monetize government debt. B) monetize government debt, but in a more limited manner than developed countries. C) monetize government debt to roughly the same extent as developed countries. D) monetize government debt to a much greater degree than developed countries.
D
With respect to the unemployment problem, social responsibility framework economists generally take the position that: A.) government should guarantee each person a satisfying and high-paying job. B.) government should eliminate only frictional unemployment. C.) each person should have a job commensurate with their training or past job experience. D.) individuals should be responsible for finding their own jobs.
C.) each person should have a job commensurate with their training or past job experience.
If people hold onto money as cash rather than depositing it, the money multiplier will: A.) get larger. B.) stay the same. C.) get smaller. D.) be increased by the Federal Reserve.
C.) get smaller.
Money is a unit of account because: A.) it is liquid. B.) it is a store of value. C.) goods and assets are priced in terms of it. D.) barter would be impossible without it.
C.) goods and assets are priced in terms of it.
The actual reserve ratio is usually: A.) less than the required reserve ratio. B.) equal to the required reserve ratio. C.) greater than the required reserve ratio. D.) the inverse of the required reserve ratio.
C.) greater than the required reserve ratio.
If nominal GDP increases by 2% and the price level drops by 1%, real GDP: A.) increases by 1%. B.) decreases by 1%. C.) increases by 3%. D.) decreases by 3%.
C.) increases by 3%.
In the AS/AD model, an expansionary monetary policy has the greatest effect on the price level when it: A.) increases both nominal and real income. B.) increases real income but not nominal income. C.) increases nominal income but not real income. D.) doesn't increase real or nominal income.
C.) increases nominal income but not real income.
Functional finance: A.) is based on empirical evidence that fiscal policy can be effective in smoothing business cycles. B.) is based on the political realities of voters wanting their government to respond to recessions. C.) is a theoretical proposition, not a moral proposition. D.) is a proposition supported by public choice economists.
C.) is a theoretical proposition, not a moral proposition.
The number of people over age 16 in an economy willing and able to work, is known as the: A.) labor force participation rate. B.) unemployment rate. C.) labor force. D.) employment force.
C.) labor force.
Expansionary monetary policy is always expected to increase: A.)nominal income but never real income. B.) real income but never nominal income. C.) nominal income. D.) real income.
C.) nominal income.
One of the duties of the Fed is to: A.) change the demand for money. B.) set the market interest rate. C.) offer financial advising to the government. D.) offer financial advising to the public
C.) offer financial advising to the government.
The jobs program suggested by the author was put forward in order to: A.) argue against the individual responsibility framework. B.) argue against the social responsibility framework. C.) provide a middle ground approach to solving the unemployment problem. D.) sell a new book that he is publishing that deals with eliminating unemployment.
C.) provide a middle ground approach to solving the unemployment problem.
A jobs program that offers higher wages to those with higher education: A.) is better than a jobs program that offers equal wages to all. B.) is worse than a jobs program that offers equal wages to all. C.) raises the costs of the program. D.) lowers the cost of the program.
C.) raises the costs of the program.
One of the ultimate Fed's targets is: A.) the Fed funds rate. B.) the reserve requirement. C.) stable prices. D.) the Taylor rule.
C.) stable prices.
Most of the government budget is mandatory spending through programs like Medicare and Social Security, and much of the rest is politically difficult to alter. Because of this: A.) fiscal policy is always undertaken only when there is a national crisis that motivates voters to seek change. B.) fiscal policy that involves raising taxes is more likely to be implemented than fiscal policy that involves borrowing money. C.) the amount of spending is unlikely to be implemented as economists suggest. D.) most spending is geared to perform as an automatic stabilizer, so that Congress is in fact largely irrelevant when it comes to providing a fiscal response to a recession.
C.) the amount of spending is unlikely to be implemented as economists suggest.
Globalization accompanied by large trade deficits most likely raises: A.) utilized unemployment. B.) cyclical unemployment. C.) the target rate of unemployment. D.) frictional unemployment.
C.) the target rate of unemployment.
According to the quantity theory of money, inflation is attributable to increases in: A) velocity B) real GDP C) velocity in excess of increases in real GDP D) the money supply in excess of increases in real GDP
D
An increase in equilibrium price and a decrease in equilibrium quantity is most likely the result of: A) an increase in demand. B) a decrease in demand. C) an increase in supply. D) a decrease in supply.
D
Another term for what the text calls the "target rate of unemployment" is: A) Keynesian unemployment B) nominal unemployment C) real unemployment D) the natural rate of unemployment
D
Assuming government's goal is to benefit society as much as possible: A) actions with negative and positive externalities should be encouraged. B) actions with negative and positive externalities should be restricted. C) actions with negative externalities should be encouraged and actions with positive externalities should be restricted. D) actions with negative externalities should be restricted and actions with positive externalities should be encouraged.
D
Assuming velocity is constant, the rate of inflation equals the difference between the rate of: A) unemployment and the rate of economic growth. B) growth in the money supply and the rate of growth in nominal GDP. C) growth in real wages and the rate of growth in real GDP. D) growth in the money supply and the rate of growth in real GDP.
D
Beside the economic and social forces that effect our decisions, the ________ also effect that A)Cultural force B)Norms force C)Equality force D)political force
D
Contractionary fiscal policy that reduces the budget deficit may: A) reduce business investment by increasing interest rates B) reduce business investment by reducing interest rates C) increase business investment by increasing interest rates D) increase business investment by reducing interest rates
D
Cyclical unemployment: A) includes structural unemployment. B) is generally greater than structural unemployment. C) is generally less than structural unemployment. D) can be reduced with demand side policies.
D
Fiscal policy is typically: A) extremely flexible because most government spending is discretionary B) extremely flexible provided policy lags are short C) flexible despite the presence of implementation problems D) difficult to implement quickly
D
Fluctuations around the long-term growth rate are called: A) recessions B) depressions C) expansions D) business cycles
D
Government is on the: A) supply side of factor markets and the demand side of goods markets. B) demand side of factor markets and the supply side of goods markets. C) supply side of both factor markets and goods markets. D) demand side of both factor markets and goods markets.
D
If asset prices rise: A) real wealth increases B) productive capacity increases C) inflation increases D) it is unclear whether wealth increases or inflation has occured
D
If inflation if highly volatile, money is A) more valuable because you need more of it B) less valuable because their is less of it C) more valuable because its unit of account function is reduced D) less valuable because its unit of account function is reduced
D
If no resources had a comparative advantage in the production of any good, the PPC would be: A) bowed outward B) bowed inward C) a horizontal line D) a downward-sloping straight line
D
If the law requires apartment building owners to lower rent, the law of supply predicts that, other things constant, the: A) supply of apartment units will shift leftward. B) supply of apartment units will shift rightward C) quantity of apartment units supplied will rise. D) quantity of apartment units supplied will fall.
D
If the velocity of money is about 1.8 and money stock is about $8 trillion, what is real GDP? A) $0.8 trillion B) $4.4 trillion C) $14.2 trillion D) we cannot compute real GDP from the data; we can only compute nominal GDP
D
If you can get more of one good only when you give up some of another good, then this point is: A)inefficient B)unattainable C)not possible D)efficient
D
Monetary base includes: A) currency + coin in circulation + checkable deposits B) currency + coin in circulation C) vault cash + checkable deposits D) currency + cash + bank deposits at Fed
D
One way to measure asset inflation is to: A) multiply the GDP deflator times nominal net worth; if it increases there is asset inflation. B) multiply the GDP deflator times real net worth; if it increases there is asset inflation. C) divide GDP by nominal net worth; if it increases there is asset inflation. D) divide nominal net worth by GDP; if it increases there is asset inflation.
D
Refer to the graph shown. A trough occurs when the economy moves from point: (#14) A) C to point D. B) B to point C. C) B to point D. D) A to point B.
D
Structural unemployment is caused by: A.) a general downturn in the economy. B.) people quitting a job just long enough to look for and find another one. C.) people over 65 who don't really want to work. D.) people losing a job when their skills become obsolete due to technological innovations.
D
The price mechanism is: A) not affected by social and political forces. B) affected by social but not political forces. C) affected by political but not social forces. D) affected by both political and social forces.
D
The short-run Phillips curve tells policy makers that if inflation is currently 6 percent and unemployment is 4 percent, measures to reduce the inflation rate to 4 percent will most likely lead to an unemployment rate of: A) 0 percent B) 2 percent. C) 4 percent. D) 6 percent.
D
The view that the government budget should always be balanced except in wartime refers to: A) public finance B) fiscal policy C) the Ricardian equivalence D) sound finance
D
When gasoline prices fall, the demand for alternative fuel cars likely: A) falls, lowering their equilibrium price and raising equilibrium quantity. B) rises, raising their equilibrium price and quantity. C) falls, raising their equilibrium price and lowering equilibrium quantity. D) falls, lowering their equilibrium price and quantity.
D
When the Fed prints and issues bills, it creates: A) a financial liability for the holder of the IOU. B) a financial asset for itself. C) a real asset. D) money.
D
When your wages rise, the: A) opportunity cost of an hour of work decreases. B) opportunity cost of an hour of leisure stays the same. C) cost of working increases. D) opportunity cost of an hour of leisure increases.
D
Which of the following is the best example of an economic precept? A) Rationality B) Supple/demand model C) PPC model D) Laissez-faire
D
Which statement is not consistent with the law of supply? A) More of a good will be supplied, the higher the price, other things constant. B) Less of a good will be supplied, the lower the price, other things constant. C) Quantity supplied of a good is directly related to the good's price. D) Quantity supplied of a good is inversely related to the good's price.
D
Which two sources of revenue comprise most of federal government revenue? A) Corporate income taxes and social security taxes and contributions B) Corporate income taxes and excise taxes C) Individual income tax and corporate income taxes D) Individual income tax and social security taxes and contributions
D
Who determines U.S. monetary policy? A) congress B) the president C) Internal Revenue Service D) Federal Reserve
D
Suppose the federal funds rate rises by 0.5 percent. If the Taylor rule is correct, this might be because output is: A.) 1 percentage point below potential output. B.) 0.5 percentage points below potential output. C.) 0.5 percentage points above potential output. D.) 1 percentage point above potential output.
D.) 1 percentage point above potential output.
The total labor force is 100,000 out of a possible working age population of 160,000. The total number of unemployed is 8,000. What is the unemployment rate? A.) 5 percent. B.) 6 percent. C.) 7 percent. D.) 8 percent.
D.) 8 percent.
Which of the following would not be considered an automatic stabilizer? A.) Welfare payments B.) Unemployment compensation C.) Income tax D.) Defense spending
D.) Defense spending
According to Okun's rule of thumb, if trend growth is 2 percent and the economy is producing at an annual rate of $5 trillion, a decrease in the rate of unemployment from 7 percent to 6 percent would be expected to be associated with which of the following changes in income? A.) Fall by $100 billion. B.) Rise by $100 billion. C.) Fall by $200 billion. D.) Rise by $200 billion
D.) Rise by $200 billion
Which of the following is not directly affected by monetary policy? A.) The money supply B.) The banking system C.) The availability of credit D.) The budget deficit
D.) The budget deficit
If a politician adheres to the individual responsibility framework, which of the following would not be mentioned in their campaign manifesto? A.) The unemployed are not looking hard enough for a job B.) The unemployed are too picky in their job requirements C.) The unemployed lack the entrepreneurial spirit D.) The unemployed deserve jobs at respectable wages
D.) The unemployed deserve jobs at respectable wages
Refer to the graph shown. (Look on Final Exam Google Doc #1.) A movement from points B to C represents a(n): A.) trough B.) peak C.) recession D.) upturn
D.) Upturn
Fiscal policy is typically: A.) extremely flexible because most government spending is discretionary. B.) extremely flexible provided policy lags are short. C.) flexible despite the presence of implementation problems. D.) difficult to implement quickly.
D.) difficult to implement quickly.
The value of intermediate goods is: A.) included in both GDP and GNP. B.) included in GDP but not GNP. C.) included in GNP but not GDP. D.) excluded from both GDP and GNP.
D.) excluded from both GDP and GNP.
Financing expansionary fiscal policy by increasing the deficit does not generally affect interest rates T or F
False
Contractionary fiscal policy that reduces the budget deficit may: A.) reduce business investment by increasing interest rates. B.) reduce business investment by reducing interest rates. C.) increase business investment by increasing interest rates. D.) increase business investment by reducing interest rates.
D.) increase business investment by reducing interest rates.
The short-term interest rate is determined in the: A.) loanable funds market. B.) stock market. C.) exchange rate market. D.) money market.
D.) money market.
Suppose the government never borrows, so that it always finances its expenditures with taxes. Suppose further that government spending does not depend on income. In this case: A.) both government spending and taxes are automatic stabilizers. B.) government spending is an automatic stabilizer but taxes are not. C.) taxes are an automatic stabilizer but government spending is not D.) neither government spending nor taxes are automatic stabilizers.
D.) neither government spending nor taxes are automatic stabilizers.
A one-time rise in the price level is: A.) inflation if that rise is above 5%. B.) inflation if that rise is above 10%. C.) inflation if that rise is above 15%. D.) not inflation.
D.) not inflation.
Refer to the graph shown. Suppose the government borrows $50 million to finance an increase in its spending and that as a result, the level of investment is reduced by $50 million. In this case, the aggregate demand curve will (#10.): A.) shift from AD0 to AD2 but then back to AD1. B.) shift from AD0 to AD2 but then out to AD3. C.) shift from AD0 to AD2. D.) not shift.
D.) not shift.
If real income rises from $5 trillion to $5.3 trillion while the price level increases by 10%, it follows that nominal income: A.) doesn't change. B.) rises by 6%. C.) rises by 10%. D.) rises by 16%.
D.) rises by 16%.
The process of packaging a variety of loans together and slicing them up into new financial instruments is called: A.) defaulting B.) diversifying C.) liquidating D.) securitization
D.) securitization
The view that the government budget should always be balanced except in wartime refers to: A.) public finance. B.) fiscal policy C.) the Ricardian equivalence. D.) sound finance.
D.) sound finance.
A contractionary monetary policy decreases the money supply and the interest rate, which decreases investment and output. True False
False
According to the law of demand, only the price of a good influences the amount people will choose to purchase. T/F
False
Asset inflation tends to hurt those who save in risky assets. T/F
False
When Classical economists of the 1930s looked at the Great Depression, they: a.) Lacked a good explanation of why it was happening. b.) Suggested wages were too flexible. c.) Blamed it on activist fiscal and monetary policies. d.) Thought it was a result of prices adjusting too quickly.
a.) Lacked a good explanation of why it was happening.
Keynesian economists believe: a.) True government policies do not affect economic activity. b.) Government can implement policy proposals that can positively impact the economy. c.) Most government policies would probably make things worse. d.) The economy ought to be left to market forces.
b.) Government can implement policy proposals that can positively impact the economy.
Potential output: a.) is purely a physical phenomenon b.) is related to the long-term growth trend. c.) requires government expenditures. d.) requires the purchase of new equipment.
b.) is related to the long-term growth trend.
The two frameworks conventional economists generally use to analyze macroeconomic issues are: a.) the inflation and the unemployment frameworks. b.) the short-run and the long-run frameworks. c.) the business cycle and the growth cycle frameworks. d.) the stagnationist and the Post-Keynesian frameworks.
b.) the short-run and the long-run frameworks.