Macro final ECO 2013
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result, a. U.S. investment, U.S. GDP, and German GDP are unaffected, because tractors are intermediate goods. b. U.S. investment and German GDP increase, but U.S. GDP is unaffected. c. U.S. investment and GDP increase, but German GDP is unaffected. d. U.S. investment, U.S. GDP, and German GDP all increase.
c
A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago. Given this scenario, which of the following is true? a. Her real and nominal salary have risen. b. Her real and nominal salary have fallen. c. Her real salary has fallen and her nominal salary has risen. d. Her real salary has risen and her nominal salary has fallen.
c
According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery? a. Higher interest payments will increase future government spending, and thereby promote a stronger the recovery. b. Repayment of the debt can always be shifted to the future, making it possible to keep tax rates low and thereby strengthen the recovery. c. Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery. d. The increase in government spending will exert a multiplier effect on the economy, leading to a stronger recovery.
c
According to the law of supply, which of the following is true? a. Less of a good will be offered by suppliers as the price rises. b. More of a good is desired by consumers as the price falls. c. More of a good will be offered by suppliers as the price rises. d. Less of a good is desired by consumers as the price rises.
c
An unexpected increase in the supply of money will a. increase only the general level of prices in the short run. b. lead to a higher rate of unemployment in the short run. c. reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses. d. reduce aggregate demand and real output in the short run.
c
A rational decision maker takes an action if and only if a. the marginal benefit of the action exceeds the marginal cost of the action. b. the marginal cost of the action is zero. c. the opportunity cost of the action is zero. d. the marginal cost of the action exceeds the marginal benefit of the action.
a
According to the Keynesian view, if policy makers thought the economy was about to enter an expansionary period, which of the following would be most appropriate? a. A tax increase. b. A tax decrease. c. An increase government expenditures. d. A planned increase in the budget deficit.
a
According to the Keynesian view, if purchasers buy more goods and services than businesses expect, a. the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels. b. the current level of income would persist in the future. c. firms would reduce their investment, and the economy would fall into a recession. d. the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level.
a
An unanticipated shift to a more expansionary monetary policy by the Fed will a. reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand. b. increase real interest rates, leading to higher asset prices that will stimulate aggregate demand. c. reduce real interest rates, leading to an appreciation of the dollar and an expansion in net exports and aggregate demand. d. increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
a
If Georgia experiences a late frost that damages the peach crop, we should expect the a. supply curve for peaches to shift to the left and the price of peaches to rise. b. demand curve for peaches to shift to the left and the price of peaches to fall. c. supply curve for peaches to shift to the right and the price of peaches to fall. d. demand curve for peaches to shift to the right and the price of peaches to rise.
a
If a customer deposits $1,000 cash into her checking account, the bank's a. assets and liabilities both rise by $1,000. b. assets rise by $1,000 and liabilities fall by $1,000. c. assets fall by $1,000 and liabilities rise by $1,000. d. profits rise by $1,000. e. assets and liabilities both fall by $1,000.
a
If new regulations make it illegal to sell older model electrical appliances, then a. producers of new models that meet the regulations will see demand for their output rise. b. consumers who might have purchased to older appliances are clearly made better off. c. consumers are helped, but the profits of appliance producers are not affected. d. consumers will certainly gain from the change.
a
In the long run, the primary effect of rapid monetary growth is a. inflation. b. lower nominal interest rates. c. an increase in real output. d. reduced unemployment.
a
In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources? a. When the benefits are concentrated and the costs widespread. b. When the benefits are widespread and the costs are widespread. c. When the benefits are widespread and the costs are concentrated. d. When the benefits are concentrated and the costs are concentrated.
a
Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction? a. Both parties expect to gain from this transaction. b. If Hillary gains from the transaction, Rebecca must lose an equal amount. c. If the dress originally costs more than $20, Rebecca gains and Hillary loses. d. If the dress originally costs less than $20, Hillary gains and Rebecca loses.
a
Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a a. $500 million decrease. b. $100 million increase. c. $500 million increase. d. $100 million decrease.
a
The expansionary phase of the business cycle is characterized by a. increasing real output and declining unemployment. b. decreasing real output and increasing unemployment. c. increasing real output and increasing unemployment. d. decreasing real output and declining unemployment.
a
The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that a. a market economy has a self-correcting mechanism that will help guide it toward full employment. b. recessions will be lengthy, and high rates of unemployment will persist for a period of time even after the economy recovers. c. government policy can improve the performance of the economy. d. market economies are inherently unstable.
a
When prices in the goods and services market are below the level anticipated, a. output will temporarily fall short of the economy's long-run potential. b. the actual rate of unemployment will be less than the natural rate of unemployment. c. output will be equal to the economy's long-run potential. d. output will temporarily exceed the economy's long-run potential.
a
When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because a. real interest rates will fall, stimulating business investment and consumer purchases. b. the dollar will appreciate on the foreign exchange market, leading to a decrease in net exports. c. lower interest rates will tend to decrease asset prices (for example, stock prices), which decreases wealth and, thereby, decreases current consumption. d. the general level of prices will fall, which will increase the disposable income of households.
a
When the actual rate of unemployment is less than the natural rate of unemployment, the economy a. operates at an output greater than its long-run potential. b. operates at its maximum sustainable output. c. must also be experiencing stable prices (zero inflation). d. operates at an output less than its long-run potential.
a
Which of the following assets can a commercial bank count as reserves? a. Its vault cash and deposits with the Fed b. The savings accounts of its depositors c. Its outstanding loans d. Its holdings of U.S. Treasury bills
a
Which of the following best describes the crowding-out effect? a. Additional government borrowing accompanying larger budget deficits will increase interest rates and reduce private spending. b. Increases in private savings will reduce interest rates and, thereby, crowd-out government expenditures. c. Higher future taxes accompanying budget deficits will increase private consumption. d. The inflation rate will rise when the unemployment rate is low.
a
Which of the following best explains why high marginal tax rates reduce GDP? a. High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently. b. High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods. c. High marginal tax rates will reduce budget deficits and lower interest rates. d. High marginal tax rates will encourage foreign investment.
a
Which of the following will occur if the price of a good is below the equilibrium price? a. Suppliers will find inventories being depleted. They will increase production and raise prices. b. Suppliers will find inventories building; they will cut output and raise prices. c. The supply curve will shift to the right until an equilibrium is established at the existing price. d. The demand curve will shift to the left until an equilibrium is established at the existing price.
a
You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank? a. There is no initial change in the money supply, and the reserves of your bank decline. b. Both money supply and the reserves of your bank immediately increase. c. The money supply immediately decreases, and the reserves of your bank increase. d. The money supply immediately increases, and the reserves of your bank decline.
a
A shift to a more expansionary monetary policy will a. increase the long-term growth rate of the economy. b. Stimulate output and employment, but only after a time lag that is generally long and variable. c. Stimulate output and employment almost immediately. d. reduce the future rate of inflation.
b
According to Adam Smith, what is the primary source of a nation's wealth? a. The amount of gold and silver in the government's possession. b. The people's ability to produce products and trade in free markets. c. A spirit of cooperation in which people share according to their means. d. Strong central planning authorities.
b
An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve? a. A movement from one point to another point along the curve b. An outward shift of the curve c. A movement from a point on the curve to a point outside the curve d. A movement from a point on the curve to a point inside the curve
b
As the Fed shifted to a highly expansionary monetary policy during the second half of 2008, why were banks reluctant to extend loans and make investments? a. Banks did not have enough excess reserves to extend loans and make investments. b. The demand for loans was weak and the business climate was uncertain. c. The rate of return on short-term investments was high, so banks were reluctant to make long-term investments. d. The interest rate that the Fed pays on excess reserves was maintained at a high rate.
b
If the Fed lends to member banks, what happens to reserves and the money supply? a. Reserves decrease and the money supply increases. b. Both increase. c. Both decrease. d. Reserves increase and the money supply decreases.
b
If the Fed unexpectedly decreases the money supply, real GDP a. increases because the resulting decrease in the interest rate leads to an increase in investment. b. decreases because the resulting increase in the interest rate leads to a decrease in investment. c. increases because the resulting increase in the interest rate leads to a decrease in investment. d. decreases because the resulting decrease in the interest rate leads to an increase in investment. e. decreases because the resulting increase in the interest rate leads to an increase in investment.
b
If the Fed unexpectedly increases the money supply, real GDP a. decreases because the resulting increase in the interest rate leads to a decrease in investment. b. increases because the resulting decrease in the interest rate leads to an increase in investment. c. decreases because the resulting decrease in the interest rate leads to an increase in investment. d. decreases because the resulting increase in the interest rate leads to an increase in investment. e. increases because the resulting increase in the interest rate leads to a decrease in investment.
b
If the Federal Reserve increases its bond purchases, the short-run effects will be a. a decrease in the money supply and higher real interest rates. b. an increase in the money supply and lower real interest rates. c. an increase in the money supply and higher real interest rates. d. a decrease in the money supply and lower real interest rates.
b
If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably a. encouraging banks to exchange their Fed deposits for currency. b. buying government securities from the public. c. selling government securities to banks. d. selling government securities to the public.
b
If the dollar price of the English pound goes from $1.50 to $2.00, the dollar has a. appreciated, and the English will find U.S. goods cheaper. b. depreciated, and the English will find U.S. goods cheaper. c. depreciated, and the English will find U.S. goods more expensive. d. appreciated, and the English will find U.S. goods more expensive.
b
If there is an increase in both the supply and demand for a good, which of the following will definitely occur? a. The equilibrium quantity will decrease. b. The equilibrium quantity will increase. c. The price of the good will decrease. d. The price of the good will increase.
b
In which of the following situations is representative democracy most likely to lead to the adoption of an inefficient government program? a. The program provides widespread benefits to all voters and imposes a significant cost on a small interest group. b. The program provides substantial benefits to a small interest group, and the costs are widespread among voters. c. The program is financed by a user charge that makes the individuals who benefit from the program pay for its cost. d. Both the benefits and costs of the program are widespread among voters.
b
Politicians often instruct households to spend in order to help the economy. This advice overlooks the fact that a. increases in consumption will provide more loanable funds for investment. b. you cannot have a strong economy if all or most households are spending just about everything they earn. c. increases in consumption will make it easier for households to deal with unanticipated future expenses. d. consumer spending is less than two-thirds of GDP.
b
Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank? a. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $200. b. There is initially no change in the supply of money; your bank's excess reserves are reduced by $800. c. The money supply immediately increases by $1,000, and the excess reserves of your bank are reduced by $800. d. There is initially no change in the supply of money; your bank's excess reserves are reduced by $200.
b
The fallacy of composition is the incorrect view that a. a small change in an economic variable will have unrecognizable but significant consequences on the economy. b. if something is true for an individual, then it must also be true for the group. c. when two events are associated, the one observed first must have caused the second. d. everything else is always held constant when a change occurs.
b
Three basic decisions must be made by all economies. What are they? a. What will be consumed; how will goods be consumed; for whom will goods be consumed? b. What goods will be produced; how will goods be produced; for whom will goods be produced? c. How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply? d. How much will be produced; when will it be produced; who will produce it?
b
When the Fed buys bonds and injects additional reserves into the banking system, this action will a. place upward pressure on short-term interest rates and downward pressure on long-term interest rates. b. place downward pressure on short-term interest rates. c. place upward pressure on both short-term and long-term interest rates. d. cause many decision makers to expect that the future rate of inflation will fall.
b
Which of the following most accurately indicates the political incentive to spend and/or tax? a. Politicians will find tax increases more attractive than increases in government expenditures. b. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes. c. Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents. d. Voters will generally support higher taxes in order to eliminate budget deficits.
b
Which of the following statements about real GDP per person is true? a. Real GDP per person in the current period minus real GDP per person from the previous period equals the growth rate of real GDP per person. b. Real GDP per person provides more meaningful comparisons across time and countries than real GDP. c. Real GDP per person provides a less useful measure of the standard of living than nominal GDP per person. d. All of the above are correct.
b
Within the AD/AS model, how does an economy adjust from an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand? a. Lower real interest rates will stimulate demand and restore equilibrium at the initial price level. b. Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate. c. Wage rates and resource prices will fall, causing a decrease in aggregate demand and the restoration of equilibrium at a higher price level. d. Long-run aggregate supply will increase, leading to a new equilibrium at a lower price level.
b
Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output, a. higher resource prices and rising interest rates will direct the economy back to full employment. b. lower resource prices and declining interest rates will direct the economy back to full employment. c. the natural rate of unemployment will increase. d. long-run aggregate supply will increase.
b
Compared to a permanent reduction in tax rates, a temporary tax cut will generally a. exert a larger impact on output and employment because its effects are immediate, long-lasting, and do not add much to the national debt. b. exert an identical impact on output and employment because the incentive effects will be the same regardless of whether the tax cut is temporary or permanent. c. exert a smaller impact on output and employment because the temporary cut will not exert much impact on long-term income or the incentive to earn. d. exert a larger impact on output and employment because the temporary tax cut will lead to a larger budget deficit.
c
Government action will often result in the counterproductive use of resources because a. voter participation is low; if more people voted, the political process would be more efficient. b. politicians are often unwilling to listen to interest groups that have specialized knowledge. c. there is often a conflict between winning political elections and adoption of only productive programs. d. many politicians are not interested in how their legislative votes will influence their chances of winning future elections.
c
If the government cuts the tax rate, workers get to keep a. less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. b. less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. c. more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. d. more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
c
If the underground economy is sizable, then GDP will a. overstate the economy's performance. b. accurately reflect this subterranean activity. c. understate the economy's performance. d. fluctuate unpredictably.
c
Imagine that there are only two nations in the world, the United States and Mexico. Ceteris paribus, what will happen if Americans buy more goods made in Mexico? a. U.S. demand curve for Mexican pesos will shift leftward. b. U.S. supply curve of Mexican pesos will shift leftward. c. U.S. demand curve for Mexican pesos will shift rightward. d. U.S. supply curve of Mexican pesos will shift rightward.
c
In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates, which of the following is likely to occur? a. There will be a net outflow of capital, which will cause the dollar to appreciate and net exports to decline. b. There will be a net inflow of capital, which will cause the dollar to depreciate and net exports to increase. c. There will be a net inflow of capital, which will cause the dollar to appreciate and net exports to decline. d. There will be a net outflow of capital, which will cause the dollar to depreciate and net exports to increase.
c
In the Keynesian view, equilibrium takes place when a. the real and nominal interest rates are equal. b. the money supply is growing at a constant rate. c. the level of total spending in the economy is equal to current output. d. current output is equal to the economy's long-run potential.
c
Public choice theory indicates that the behavior of people in government a. differs from the behavior of people in the private sector because public sector decision roles do not allow people to pursue their own self-interests. b. differs from the behavior of people in the private sector because they are motivated by the public interest rather than their own personal self-interest. c. is best understood by applying the same principles we use to predict the behavior of people in the private sector. d. is the same as people in the private sector only if decisions are made by majority vote.
c
Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will a. exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity. b. make it more costly for parents to provide for their children. c. reduce the after-tax cost of raising children and, therefore, increase the birth rate. d. reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate.
c
What is the opportunity cost of an action? a. The total time spent by all parties in carrying out the action. b. The monetary payment the action required. c. The value of the best opportunity that must be sacrificed in order to take the action. d. The cost of all alternative actions that could have been taken, added together.
c
When an expansionary monetary policy leads to an acceleration in the rate of inflation, it will also result in a. an appreciation of the dollar in the foreign exchange market. b. lower nominal interest rates. c. higher nominal interest rates. d. lower money wages.
c
When will actual GDP be below potential GDP? a. During an economic boom. b. When the economy is at full employment. c. During a recession. d. When resources are fully utilized.
c
Which of the following best expresses the central idea of countercyclical fiscal policy? a. Planned deficits are experienced during economic expansionary periods and planned surpluses during economic recessions. b. The balanced-budget approach is the proper criterion for determining annual budget policy. c. Deficits are planned during economic recessions, and surpluses are utilized to restrain expansionary periods. d. Actual deficits should equal actual surpluses during a period of deflation.
c
Which of the following indicates the primary mechanism by which the money supply expands? a. The U.S. government purchases additional gold. b. The U.S. Treasury prints additional currency. c. The Fed purchases additional bonds, which increases the reserves available to the banking system. d. The public decides to hold more currency rather than checking deposits.
c
Which of the following is the best description of the scientific method in economics? a. The use of controlled laboratory experiments to understand the way the world works. b. The use of modern electronic testing equipment to understand the world. c. The unbiased development and testing of theories about how the world works. d. Finding evidence to support preconceived theories about how the world works.
c
Which of the following is true in an economy with persistent inflation? a. Real GDP will grow faster than nominal GDP. b. Nominal and real GDP will both fall. c. Nominal GDP will grow faster than real GDP. d. Nominal and real GDP will grow at the same rate.
c
Which of the following is true regarding the concept of full employment? a. It reflects the impact of an economic contraction. b. It is based on the premise that an economy with an efficient labor market will experience no unemployment. c. It reflects the "shopping" of employees looking for employment and of employers seeking to hire workers. d. It indicates that full employment is present when the actual rate of unemployment is below the natural rate.
c
Which of the following would cause prices and real GDP to rise in the short run? a. Short-run aggregate supply shifts left. b. Aggregate demand shifts left. c. Aggregate demand shifts right. d. Short-run aggregate supply shifts right.
c
Why are people willing to pay more for a diamond than for a bottle of water? a. Because the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b. Because water prices are held artificially low by governments, since water is necessary for life. c. Because the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. d. Because producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
c
Why is the natural rate of unemployment not zero? a. Unemployment will always rise during the recessionary phase of the business cycle. b. Some workers will always have few skills. c. The economy is characterized by dynamic change and imperfect information. d. Not every member of society is capable of participating in the labor force.
c
A decrease in the expected future price of a good will cause the current demand for the good to a. increase, which is a shift to the left of the demand curve. b. increase, which is a shift to the right of the demand curve. c. decrease, which is a shift to the right of the demand curve. d. decrease, which is a shift to the left of the demand curve.
d
A positive nominal interest rate indicates a. the purchasing power in your savings account today. b. the number of dollars in your savings account today. c. how fast the purchasing power of your savings account is rising over time. d. how fast the number of dollars in your savings account is rising over time.
d
An individual should continue to spend time searching for a job as long as a. all salary offers are below what the person expected. b. information is available that the individual has not yet collected. c. job openings are available in the individual's field. d. the marginal benefit expected from additional search exceeds the marginal cost.
d
Creative destruction refers to the process where a. producing more of one good causes you to produce less of another b. everybody involved is made worse off c. new ways to destroy buildings are employed d. new products and methods of production are continuously replacing old ones
d
Don can produce 10 pens or 20 pencils in one hour while Bob can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct? a. Don has a comparative advantage over Bob in the production of pens b. Bob and Don cannot gain from specialization and exchange. c. Bob has a comparative advantage over Don in the production of pencils d. Bob has a comparative advantage over Don in the production of pens
d
If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments? a. Banks fear the Fed will remove the excess reserves. b. Banks are legally required to expand loans when the Fed creates excess reserves. c. Maintaining reserves in excess of demand deposits is against the law. d. Loans and investments generally earn more interest income for the banks than excess reserves.
d
If the Fed wanted to expand the money supply as part of an antirecession strategy, it could a. increase the reserve requirements imposed on commercial banks. b. sell U.S. government securities and other financial assets that it is currently holding. c. raise the interest rate on loans extended to banks and other financial institutions. d. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.
d
If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a. a decrease in the supply of the good. b. an increase in the supply of the good. c. a decrease in the demand for the good. d. an increase in the demand for the good.
d
If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has Selected Answer: a. depreciated relative to the peso. Other things the same, the depreciation would make you more likely to travel to Mexico. b. depreciated relative to the peso. Other things the same, the depreciation would make you less likely to travel to Mexico. c. appreciated relative to the peso. Other things the same, the appreciation would make you less likely to travel to Mexico. d. appreciated relative to the peso. Other things the same, the appreciation would make you more likely to travel to Mexico.
d
If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take? a. Take milk from government storage and sell it. b. Subsidize purchases of dairy equipment. c. Encourage farmers to produce more milk. d. Encourage farmers to produce less milk.
d
In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects? a. The costs are highly concentrated, and the benefits are widespread among voters. b. The benefits are highly concentrated, and costs are widespread among voters. c. The benefits accrue primarily in the future, while the costs are more visible during the current period. d. Both the benefits and costs are widespread among voters.
d
Public choice theory assumes each voter will tend to support the political candidate who offers a. programs that create the most equal distribution of income. b. programs with the largest benefits to society. c. the highest potential for being a good leader in times of war. d. to provide the voter with the most personal benefits at the least personal cost.
d
The actual rate of unemployment will be greater than the natural rate of unemployment when a. the actual output is equal to the economy's potential output. b. the actual output is greater than the economy's potential output. c. the inflation rate has been relatively constant for several years. d. the actual output is less than the economy's potential output.
d
The difference between positive economic statements and normative economic statements is that a. positive statements are based on opinion while normative statements are based on fact b. positive statements are true and normative statements are often false c. positive statements are often false and normative statements are true d. positive statements are based on fact while normative statements are based on opinion e. both b and d.
d
The expenditure multiplier indicates that a. an increase in saving will cause output to rise by a multiple of the additional saving. b. the marginal propensity to consume is greater than one. c. a market economy will be more stable than classical economists thought. d. changes in investment, government, or consumption spending can trigger much larger changes in output.
d
The law of demand refers to the a. inverse relationship between the price of a good and the quantity offered for sale. b. increase in the quantity of a good available when its price increases. c. price increase that results from an increase in demand for a good of limited supply. d. inverse relationship between the price of a good and the willingness of consumers to buy it.
d
The legal requirement that commercial banks hold required reserves equal to some fraction of their deposits a. limits the ability of the Treasury to expand the national debt. b. prevents runs on banks by depositors who fear that banks have insufficient assets to meet the claims of their depositors. c. prevents the Fed from controlling the money supply since commercial banks can always offset the actions of the Fed. d. limits the ability of banks to expand the money supply by extending additional loans.
d
The political incentive structure tends to a. encourage budget surpluses during both recessions and expansions. b. discourage budget deficits during recessions. c. encourage a balanced budget regardless of economic conditions. d. encourage budget deficits during both recessions and expansions.
d
The recessionary phase of the business cycle is characterized by a. decreasing real output and declining unemployment. b. increasing real output and increasing unemployment. c. increasing real output and declining unemployment. d. decreasing real output and increasing unemployment.
d
Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. Friday Good Y Good X 2 3 4 2 6 1 Crusoe Good Y Good X 1 3 2 2 3 1 If Crusoe and Friday want to maximize their consumption possibilities, a. Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. b. both individuals should strive for self-sufficiency, which always maximizes output. c. Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. d. Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.
d
What do the forces of supply and demand assure? a. Demand curves and supply curves tend to shift to the right as time goes by. b. The equilibrium price of a good will be rising more often than it will be falling. c. When the supply curve for a good shifts, the demand curve for that good shifts in response. d. The price of a good will eventually rise in response to an excess demand for that good.
d
When the Fed sells Treasury Bonds on the open market, it will tend to a. increase the money supply and lower interest rates. b. increase the money supply and raise interest rates. c. decrease the money supply and lower interest rates. d. decrease the money supply and raise interest rates.
d
When the Federal Reserve System wants to increase the money supply, what does it typically do? a. It increases the discount rate. b. It increases the required reserve ratio. c. It sells bonds on the open market. d. It purchases U.S. government securities.
d
When the economy is operating at an output rate below its full-employment level, the a. strong demand for resources will cause resource prices to rise. b. actual unemployment rate will be less than the natural rate of unemployment. c. current rate of output will tend to persist into the future. d. actual level of unemployment will exceed the natural rate of unemployment.
d
Which of the following about the political process is true? a. Politicians generally place more weight on how their decisions affect future costs and benefits than on how they affect present costs and benefits. b. A politician always attempts to pursue policies that are good for society even if they are strongly opposed by many of her constituents or contributors. c. The value of being in office is so low that most political candidates spend very little on campaigns to try to win (or keep) elected office. d. To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors.
d
Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy? a. Reduce the reserve requirements. b. Urge the Treasury to sell more U.S. securities. c. Decrease government expenditures. d. Sell some of its holdings of government bonds.
d
Which of the following is a major deficiency of fiscal policy as a stabilization tool? a. A change in fiscal policy exerts major effects on the economy quickly. b. Congress is reluctant to make changes in either taxes or expenditures. c. The Constitution requires the president to submit and Congress to pass a balanced budget. d. Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly.
d
Which of the following is the most likely explanation for the imposition of a price floor in the market for corn? a. Policymakers have studied the effects of the price floor carefully and they recognize that the price floor will improve the efficiency of resource use. b. Buyers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor. c. Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into enacting the price floor. d. Sellers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.
d
Which of the following is true regarding private ownership? a. Relative to common ownership, private ownership generally leads to less conservation of resources. b. Private ownership generally gives the owner little incentive to find ways to use the resource wisely. c. With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource. d. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others.
d
Which of the following would cause prices to fall and output to rise in the short run? a. Aggregate demand shifts left. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Short-run aggregate supply shifts right.
d
Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if a. the government purchases goods with the additional revenue. b. the higher taxes cause people to save less. c. the government uses the additional revenue to retire some of the federal debt. d. the higher taxes lead workers to seek out a second job. e. the higher taxes cause workers to work less.
e
Suppose demand decreases and supply increases. Which of the following will happen? a. The change in equilibrium price and quantity cannot be determined. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. d. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. e. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.
e
Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true? a. Your nominal wage fell. b. Although your nominal wage fell, your real wage increased. c. Both your nominal and real wages decreased. d. Both nominal and real wages increased. e. Your real wage fell.
e