Econ Final 2020 (Part 1), Econ Final 2020 (Part 2), Econ Final (Part 3)

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62. Refer to the above data. NDP is: A. $370. B. $402. C. $392. D. $467.

C

1. Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B

82. In determining real GDP, economists adjust the nominal GDP by using the: A. national productivity index. B. wholesale (producers') price index. C. GDP price index. D. consumer price index.

C

49. Refer to the above diagram for a private closed economy. The equilibrium level of GDP is: A. $400. B. $300. C. $200. D. $100.

B

1. The group of three economists appointed by the President to provide fiscal policy recommendations is the: A. Council of Economic Advisers. B. Joint Economic Committee. C. Bureau of Economic Analysis. D. Federal Reserve Board of Governors.

A

16. The crowding-out effect of expansionary fiscal policy suggests that: A. government spending increases at the expense of private investment. B. imports replace domestic production. C. private investment increases at the expense of government spending. D. saving increases at the expense of investment.

A

100. The large trade deficit that the U.S. has with China persists in part because: A. the U.S. economy has grown slowly in recent years. B. China has fixed its exchange rate and not allowed the yuan to appreciate relative to the U.S. dollar. C. China has experienced rapid economic growth over the past decade. D. China has recently imposed or increased tariffs on most goods imported from the U.S.

B

11. Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that: A. Ben's statement is normative, but Holly's is positive .B. Holly's statement is normative, but Ben's is positive. C. Both statements are normative. D. Both statements are positive.

B

11. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

B

12. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: A. 3 percent. B. 6 percent. C. 7 percent. D. 53 percent.

B

12. The economizing problem is one of deciding how to make the best use of: A. virtually unlimited resources to satisfy virtually unlimited wants. B. limited resources to satisfy virtually unlimited wants. C. unlimited resources to satisfy limited wants. D. limited resources to satisfy limited wants.

B

13. Economists refer to a budget deficit that exists when the economy is achieving full employment as a: A. cyclical deficit. B. cyclically-adjusted deficit. C. natural deficit. D. nonrecurring deficit.

B

27. Paper money (currency) in the United States is issued by the: A. United States Mint. B. Federal Reserve Banks. C. United States Treasury. D. national banks.

B

73. The terms of trade reflect the: A. rate at which gold exchanges internationally for any domestic currency. B. ratio at which nations will exchange two goods. C. fact that the gains from trade will be equally divided. D. cost conditions embodied in a single country's production possibilities curve.

B

74. Refer to the above data. Nominal GDP in year 3 is: A. $100. B. $450. C. $225. D. $150.

B

14. A large negative GDP gap implies: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level.

C

14. The amount by which Federal tax revenues exceed Federal government expenditures during a particular year is the: A. Federal reserve. B. budget deficit. C. budget surplus. D. public debt.

C

65. Refer to the above data. DI is: A. $284. B. $329. C. $274. D. $402.

C

84. The World Trade Organization: A. is also known as the International Monetary Fund (IMF). B. is also known as NAFTA. C. was established to resolve disputes arising under world trade rules. D. enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.

C

85. Menu costs: A. increase during recession. B. decrease during recession. C. are the costs to firms of changing prices and communicating them to customers. D. are sunk costs and therefore should be disregarded.

C

35. Refer to the above data. The marginal propensity to consume is: A. .25. B. .75. C. .20. D. .80.

D

63. Refer to the above data. NI is: A. $362. B. $372. C. $447. D. $402.

D

76. If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: A. 100. B. 200. C. 240. D. 300.

D

64. Refer to the above data. PI is: A. $314. B. $346. C. $408. D. $437.

A

1. According to economists, economic self-interest: A. is a reality that underlies economic behavior. B. has the same meaning as selfishness. C. is more characteristic of men than of women. D. is usually self-defeating.

A

19. If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: A. 11 percent. B. 33 percent. C. 91 percent. D. 10 percent.

A

67. Refer to the above data. Consumption of fixed capital is: A. $5. B. $10. C. $20. D. $30.

A

95. Refer to the above diagram. Other things equal, a rightward shift of the demand curve would: A. depreciate the dollar. B. appreciate the dollar. C. reduce the equilibrium quantity of euros. D. depreciate the euro.

A

99. Which of the following is not a condition of the international gold standard? A. A nation must be willing to accept very wide fluctuations in its exchange rate. B. A nation must allow gold to be freely exported and imported. C. A nation must be willing to convert gold into paper money and vice versa at a stipulated rate. D. A nation must define its monetary unit in terms of a certain quantity of gold.

A

37. Refer to the above diagram. The marginal propensity to consume is: A. .2. B. .8. C. .4. D. .3.

B

61. Refer to the above data. GDP is: A. $390. B. $417. C. $422. D. $492.

B

83. Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? A. the services of used-car dealers B. the child-care services provided by stay-at-home parents C. the construction of new houses D. government expenditures on military equipment

B

84. When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A. reduce per unit production costs. B. reduce worker morale and work effort, and thus lower productivity. C. increase the firms' cost of raising financial capital. D. reduce the demands for their products.

B

86. If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is: A. $1 = 2 British pounds in the United States. B. $2 = 1 British pound in the United States. C. $1 = 2 British pounds in Great Britain. D. $.5 = 1 British pound in Great Britain.

B

87. Refer to the above diagrams. A decline in aggregate expenditures from AE2 to AE1resulting from the real-balances, interest-rate effect, and foreign purchases effects would be depicted as: A. a movement from A to C along aggregate demand curve AD1. B. a movement from C to A along aggregate demand curve AD1. C. a shift of aggregate demand from AD1 to AD2. D. a shift of aggregate demand from AD2 to AD1.

B

89. Refer to the above data. The U.S. balance on current account is a: A. $40 billion surplus. B. $25 billion deficit. C. $25 billion surplus. D. $30 billion deficit.

B

89. Refer to the above diagram. If the aggregate supply curve shifted from AS0 to AS1, and the aggregate demand curve remains at AD0 we could say that: A. aggregate supply has increased, equilibrium output has decreased, and the price level has increased. B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. C. an increase in the amount of output supplied has occurred. D. aggregate supply has increased and the price level has risen to G.

B

10. Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: A. unemployed. B. employed. C. not in the labor force. D. in the labor force.

C

11. The presence of discouraged workers: A. increases the size of the labor force, but does not affect the unemployment rate. B. reduces the size of the labor force, but does not affect the unemployment rate. C. may cause the official unemployment rate to understate the true amount of unemployment. D. may cause the official unemployment rate to overstate the true amount of unemployment.

C

32. Which of the following relations is not correct? A. 1 - MPC = MPS B. APS + APC = 1 C. MPS = MPC + 1 D. MPC + MPS = 1

C

65. Refer to the above diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the: A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. recessionary expenditure gap is ed. D. inflationary expenditure gap is ed.

C

8. Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: A. cyclically unemployed. B. structurally unemployed. C. frictionally unemployed. D. not a member of the labor force.

C

80. In which of the following sets of circumstances can we confidently expect inflation? A. aggregate supply and aggregate demand both increase B. aggregate supply and aggregate demand both decrease C. aggregate supply decreases and aggregate demand increases D. aggregate supply increases and aggregate demand decreases

C

80. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. The size of the import quota: A. is vz. B. is vy. C. is wy. D. cannot be determined.

C

9. The natural rate of unemployment is: A. higher than the full-employment rate of unemployment. B. lower than the full-employment rate of unemployment. C. that rate of unemployment occurring when the economy is at its potential output. D. found by dividing total unemployment by the size of the labor force.

C

90. (Consider This) The idea that the price level readily moves upward but not downward is called the: A. elevator effect. B. escalator effect. C. ratchet effect. D. stair-step effect

C

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. 30. Refer to the above data. The MPC is: A. .45. B. .20. C. .50. D. .90.

D

10. A positive statement is one which is: A. derived by induction. B. derived by deduction. C. subjective and is based on a value judgment. D. objective and is based on facts.

D

21. Money functions as: A. a store of value. B. a unit of account C. a medium of exchange. D. all of these.

D

62. Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the: A. prime rate. B. Federal funds rate. C. Treasury bill rate. D. discount rate.

D

82. The increased-domestic-employment argument for tariff protection holds that: A. domestic inflation is a desirable policy goal because it stimulates exports. B. domestic deflation is a desirable policy goal because it stimulates imports. C. an increase in tariffs will reduce net exports and stimulate domestic employment. D. an increase in tariffs will increase net exports and stimulate domestic employment.

D

82. Which of the above diagrams best portrays the effects of declines in the incomes of U.S. trading partners? A. A B. B C. C D. D

D

83. Prices and wages tend to be: A. flexible both upward and downward. B. inflexible both upward and downward. C. flexible downward, but inflexible upward. D. flexible upward, but inflexible downward.

D

83. Which of the following arguments contends that certain industries need to be protected in the interest of national security? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the military self-sufficiency argument

D

85. Environmental pollution is accounted for in: A. GDP. B. PI. C. DI. D. none of these.

D

87. Refer to the above data. The United States has a balance of goods: A. deficit of $10 billion. B. surplus of $30 billion. C. deficit of $30 billion. D. surplus of $20 billion.

D

77. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. If this economy was entirely closed to international trade, equilibrium price and quantity would be: A. Pa and z. B. Pa and x. C. Pc and z. D. Pc and v.

B

78. Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately: A. 160 percent. B. 44 percent. C. 37 percent. D. 80 percent.

B

79. A protective tariff will: A. increase the sales of foreign exporters. B. increase the price and sales of domestic producers. C. increase the welfare of domestic consumers. D. create an efficiency gain in the domestic economy.

B

37. The development of the Internet and e-mail to replace regular mail would be an example of: A. Roundabout production B. Derived demand C. Creative destruction D. Specialization

C

68. Refer to the above data. Disposable income is: A. $83. B. $73. C. $75. D. $77.

C

50. If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system: A. m = R - 1. B. R = m/1. C. R = m - 1. D. m = 1/R.

D

88. Refer to the above data. The U.S. balance on goods and services is a: A. $10 billion deficit. B. $20 billion deficit. C. $30 billion surplus. D. $30 billion deficit.

D

5. An economist who favors smaller government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A

53. The system that measures the economy's overall performance is formally known as: A. National income accounting B. Business cycle measurement C. GDP assessment D. Final output and income statistics

A

54. A nation's gross domestic product (GDP): A. is the dollar value of all final output produced within the borders of the nation. B. is the dollar value of all final output produced by its citizens, regardless of where they are living. C. can be found by summing C + In + S + Xn. D. is always some amount less than C + Ig + G + Xn.

A

55. If intermediate goods and services were included in GDP: A. the GDP would be overstated. B. the GDP would then have to be deflated for changes in the price level. C. nominal GDP would exceed real GDP. D. the GDP would be understated.

A

56. At the equilibrium GDP for a private open economy: A. net exports may be either positive or negative. B. imports will always exceed exports. C. exports will always exceed imports. D. exports and imports will be equal.

A

57. Which of the following is a tool of monetary policy? A. open market operations B. changes in banking laws C. changes in tax rates D. changes in government spending

A

58. The smallest component of aggregate spending in the United States is: A. net exports. B. government purchases. C. investment. D. consumption.

A

59. If the multiplier in an economy is 5, a $20 billion increase in net exports will: A. increase GDP by $100 billion. B. reduce GDP by $4 billion. C. decrease GDP by $100 billion. D. increase GDP by $20 billion.

A

59. In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are: A. not counted. B. counted as investment spending. C. counted as government spending. D. counted as consumption spending.

A

6. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough

A

(Advanced analysis) Answer the question on the basis of the following consumption and investment data for a private closed economy. Figures are in billions of dollars.C = 60 + .6YI = I0 = 3051. Refer to the above data. The equilibrium level of income (Y) is: A. 360. B. 225. C. 200. D. 135.

B

38. The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as: A. Consumer sovereignty B. The invisible hand C. Derived demand D. Profit maximization

B

18. (Last Word) The "after this, therefore because of this" fallacy states that: A. because event A precedes event B, A is necessarily the cause of B. B. the very attempt to accomplish a certain objective may create conditions that prohibit the achievement of that goal. C. events may drastically alter plans; one's intentions and actual accomplishments may differ considerably. D. generalizations that are accurate at the level of microeconomics may be inaccurate at the level of macroeconomics.

A

24. In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A

24. Refer to the above diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost: A. will be 4 units of bicycles. B. will be 2 units of bicycles. C. will be zero because unemployed resources are available. D. of doing so cannot be determined from the information given.

A

25. Inflation is undesirable because it: A. arbitrarily redistributes real income and wealth. B. invariably leads to hyperinflation. C. usually is accompanied by declining real GDP. D. reduces everyone's standard of living.

A

26. Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A

28. Laissez-faire capitalism is characterized by: A. Very limited government role in the economy B. Active government intervention in the economy C. Individuals and firms abiding by a government economic plan D. A very fair distribution of income and wealth

A

29. Refer to the above information. Money supply M2 for this economy is: A. $480. B. $130. C. $490. D. $630.

A

29. Which of the following is correct? A. APC + APS = 1. B. APC + MPS = 1. C. APS + MPC = 1. D. APS + MPS = 1.

A

43. The upward slope of the supply curve reflects the: A. principle of specialization in production. B. law of supply. C. fact that price and quantity supplied are inversely related. D. law of diminishing marginal utility.

B

3. Fiscal policy refers to the: A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulation of government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.

A

31. The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.

A

32. Anything that is generally acceptable in trading for goods and services is a: A. Medium of exchange B. Measure of value C. Store of value D. Token money

A

32. The value of money varies: A. inversely with the price level. B. directly with the volume of employment. C. directly with the price level. D. directly with the interest rate.

A

33. Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental question? A. What will be produced? B. How is the output to be produced? C. How can the system accommodate change? D. Who is to receive the output?

A

38. To say that the Federal Reserve Banks are quasi-public banks means that: A. they are privately owned, but managed in the public interest. B. they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. C. they deal only with commercial banks, and not the public. D. they are publicly owned, but privately managed.

A

39. "Subprime mortgage loans" refer to: A. high-interest rate loans to home buyers with above average credit risk. B. home-buying loans that charge interest rates below the prime interest rate. C. loans to buyers of homes that are in need of substantial repair. D. loans from the Federal Reserve to home mortgage lenders to support a greater volume of home-buying loans at affordable interest rates.

A

39. The relationship between the real interest rate and investment is shown by the: A. investment demand schedule. B. consumption of fixed capital schedule. C. saving schedule. D. aggregate supply curve.

A

4. In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of: A. scarcity and opportunity costs. B. money and real capital. C. complementary economic goals. D. full production.

A

40. The immediate determinants of investment spending are the: A. expected rate of return on capital goods and the real interest rate. B. level of saving and the real interest rate. C. marginal propensity to consume and the real interest rate. D. interest rate and the expected price level.

A

41. The law of demand states that, other things equal: A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

A

42. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____. A. direct, inverse B. inverse, direct C. inverse, inverse D. direct, direct

A

47. The aggregate expenditures model is built upon which of the following assumptions? A. Prices are fixed. B. The economy is at full employment. C. Prices are fully flexible. D. Government spending policy has no ability to affect the level of output.

A

49. Refer to the above diagram. A government-set price ceiling is best illustrated by: A. price A. B. quantity E.' C. price C. D. price B.

A

64. A recessionary expenditure gap is: A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. B. the amount by which equilibrium GDP falls short of the full-employment GDP. C. the amount by which investment exceeds saving at the full-employment GDP. D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

A

67. In an effort to stop the U.S. recession of 2007-2009, the Federal government: A. reduced taxes and increased government spending. B. imposed large tariffs on many imported goods to protect domestic jobs. C. raised interest rates to encourage greater business investment. D. avoided Keynesian policies because of the threat of inflation

A

67. Which of the following actions by the Fed would cause the money supply to increase? A. Purchases of government bonds from banks. B. An increase in the reserve requirement. C. An increase in the discount rate. D. Sales of government bonds to the public.

A

69. Refer to the above data. From this information we can conclude that the net foreign factor income is: A. negative $5 billion. B. zero. C. positive $5 billion. D. positive $15 billion.

A

7. Macroeconomics approaches the study of economics from the viewpoint of: A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.

A

70. The problem of cyclical asymmetry refers to the idea that: A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. B. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. C. cyclical downswings are typically of longer duration than cyclical upswings. D. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

A

73. Which one of the following would not shift the aggregate demand curve? A. a change in the price level B. depreciation of the international value of the dollar C. a decline in the interest rate at each possible price level D. an increase in personal income tax rates

A

78. Productivity measures: A. real output per unit of input. B. per unit production costs. C. the changes in real wealth caused by price level changes. D. the amount of capital goods used per worker.

A

81. Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information we: A. cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003. B. can conclude that the economy was achieving real economic growth. C. can conclude that real GDP was higher in 2002 than in 2003. D. can conclude that real GDP was lower in 2002 than in 2003.

A

81. Which of the above diagrams best portrays the effects of an increase in resource productivity? A. A B. B C. C D. D

A

84. A large underground economy results in an: A. understated GDP. B. overstated GDP. C. understated GDP price index. D. overstated GDP price index.

A

85. "International trade" refers to: A. purchasing or selling currently produced goods or services across an international border. B. any transaction across an international border. C. any financial transaction across an international border. D. buying or selling of preexisting assets across an international border.

A

86. An increase in net exports will shift the: A. aggregate expenditures curve upward and the aggregate demand curve rightward. B. aggregate expenditures curve upward and the aggregate demand curve leftward. C. aggregate expenditures curve downward and the aggregate demand curve rightward. D. aggregate expenditures curve downward and the aggregate demand curve leftward.

A

88. Efficiency wages are: A. above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. B. wage payments necessary to compensate workers for unpleasant or risky work conditions. C. usually less than market wages. D. relevant to macro economics because they explain rightward shifts in aggregate demand.

A

91. The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that: A. $1 = 4 euros. B. $1 = .5 euros. C. 1 euro = $.50. D. 1 euro = $2.

A

15. The negative slope of the production possibilities curve is a graphical way of indicating that: A. any economy "can have its cake and eat it too." B. to produce more of one product we must do with less of another. C. the principle of increasing opportunity costs applies to only parts of the economy. D. consumers buy more when prices are low than when prices are high.

B

15. The political business cycle refers to the possibility that: A. incumbent politicians will be reelected regardless of the state of the economy. B. politicians will manipulate the economy to enhance their chances of being reelected. C. there is more inflation during Democratic administrations than during Republican administrations. D. recessions coincide with election years.

B

16. The construction of a production possibilities curve assumes: A. the quantities of all resources are unlimited. B. technology is fixed. C. some resources are unemployed. D. there is no inflation in the economy.

B

17. Refer to the above diagram for athletic shoes. The optimal output of shoes is: A. Q1. B. Q2. C. Q3. D. greater than Q3.

B

2. Economics may best be defined as the: A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. use of policy to refute facts and hypotheses.

B

20. As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by: A. dividing "70" into the annual rate of inflation. B. dividing the annual rate of inflation into "70." C. subtracting the annual change in nominal incomes from "70." D. multiplying the annual rate of inflation by "70."

B

22. Demand-pull inflation: A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation.

B

22. If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.

B

22. In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population? A. Immigration of new workers into Japan. B. Advancements in technology that make labor more productive. C. Reduced employment of capital because fewer workers are available to use it. D. Greater consumption of goods imported from other countries.

B

23. Refer to the above diagram. Points A, B, C, D, and E show: A. that the opportunity cost of bicycles increases, while that of computers is constant. B. combinations of bicycles and computers that society can produce by using its resources efficiently. C. that the opportunity cost of computers increases, while that of bicycles is constant. D. that society's demand for computers is greater than its demand for bicycles.

B

23. The phrase "too much money chasing too few goods" best describes: A. the GDP gap. B. demand-pull inflation. C. the inflation premium. D. cost-push inflation.

B

25. Refer to the above diagram. The combination of computers and bicycles shown by point G is: A. attainable, but too costly. B. unattainable, given currently available resources and technology. C. attainable, but involves unemployment. D. irrelevant because it is inconsistent with consumer preferences.

B

27. A basic characteristic of a command system is that: A. Wages paid to labor are higher B. Government owns most economic resources C. Free markets are never permitted in a command economy D. Government planners play a limited role in deciding what goods will be produced

B

28. Refer to the figure above. The consumption schedule indicates that: A. consumers will maximize their satisfaction where the consumption schedule and 45 degree line intersect. B. up to a point consumption exceeds income, but then falls below income. C. the MPC falls as income increases. D. households consume as much as they earn.

B

28. The difference between M1 and M2 is that: A. the former includes time deposits. B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. C. the latter includes negotiable government bonds. D. the latter includes cash held by commercial banks and the U.S. Treasury.

B

3. Purposeful behavior means that: A. people are selfish in their decision-making. B. people weigh costs and benefits to make decisions. C. people are immune from emotions affecting their decisions. D. decision-makers do not make mistakes when weighing costs and benefits.

B

33. If the marginal propensity to consume is .9, then the marginal propensity to save must be: A. 1. B. .1. C. 1.1. D. .9.

B

33. The basic policy-making body in the U.S. banking system is the: A. Federal Open Market Committee (FOMC). B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.

B

34. In the U.S. economy the money supply is controlled by the: A. U.S. Treasury. B. Federal Reserve System. C. Senate Committee on Banking and Finance. D. Congress.

B

34. The term consumer sovereignty means that: A. Government is responsible for protecting consumers' interests B. What is produced is ultimately determined by what consumers buy C. There are no limits on what consumers may buy in a market system D. Producers have a strong influence over what consumers buy

B

34. Which of the following will not cause the consumption schedule to shift? A. a sharp increase in the amount of wealth held by households B. a change in consumer incomes C. the expectation of a recession D. a growing expectation that consumer durables will be in short supply

B

35. Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy? A. What will be produced? B. How is the output to be produced?' C. How can the system accommodate change? D. Who is to receive the output?

B

44. The primary purpose of the legal reserve requirement is to: A. prevent banks from hoarding too much vault cash. B. provide a means by which the monetary authorities can influence the lending ability of commercial banks. C. prevent commercial banks from earning excess profits. D. provide a dependable source of interest income for commercial banks.

B

46. Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be: A. zero. B. 10 percent. C. 20 percent. D. 25 percent.

B

46. Other things equal, an excise tax on a product will: A. increase its supply. B. increase its price. C. increase the quantity sold. D. increase its demand.

B

47. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: A. supply has increased and equilibrium quantity has decreased. B. supply has decreased and equilibrium quantity has decreased. C. there has been an increase in the quantity supplied. D. supply has increased and price has risen to 0G.

B

48. Refer to the above diagrams. Curve A: A. is an investment schedule and curve B is a consumption of fixed capital schedule. B. is an investment demand curve and curve B is an investment schedule. C. and B are totally unrelated. D. shifts to the left when curve B shifts upward.

B

51. The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP.

B

52. The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the: A. Council of Economic Advisers B. Bureau of Economic Analysis C. National Bureau of Economic Research D. Bureau of Labor Statistics

B

53. Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that: A. bond prices and interest rates are inversely related. B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. C. the rate at which money is spent is zero. D. lower interest rates result in lower opportunity costs of supplying money.

B

53. Saving is always equal to: A. planned investment less unintended increases in inventories. B. actual investment. C. planned investment. D. unintended changes in inventories.

B

54. Which of the following statements is correct? A. Interest rates and bond prices vary directly. B. Interest rates and bond prices vary inversely. C. Interest rates and bond prices are unrelated. D. Interest rates and bond prices vary directly during inflations and inversely during recessions.

B

55. (Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is: A. 3. B. 4. C. 5. D. 10.

B

55. Refer to the above market for money diagrams. Curve D1 represents the: A. total demand for money. B. transactions demand for money. C. asset demand for money. D. stock of money.

B

56. The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are both unchanged.

B

56. The value added of a firm is the market value of: A. a firm's output plus the value of the inputs bought from others. B. a firm's output less the value of the inputs bought from others. C. the firm's output. D. the firm's inputs bought from others.

B

59. The purchase of government securities from the public by the Fed will cause: A. commercial bank reserves to decrease. B. the money supply to increase. C. demand deposits to decrease. D. the interest rate to increase.

B

60. Refer to the above diagram. If (C + Ig) are the private expenditures in the closed economy and Xn2are the net exports in the open economy, we can conclude that: A. exports are negative. B. net exports are positive. C. net exports are negative. D. trade is balanced.

B

61. An increase in the legal reserve ratio: A. increases the money supply by increasing excess reserves and increasing the monetary multiplier. B. decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. C. increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. D. decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.

B

63. If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to: A. increase by $30 billion. B. increase by $45 billion. C. decrease by $35 billion. D. increase by $50 billion.

B

70. Consumption of fixed capital (depreciation) can be determined by: A. adding taxes on production and imports to NDP. B. subtracting NDP from GDP. C. subtracting net investment from GDP. D. adding net investment to gross investment.

B

71. The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by: A. gross domestic product. B. national income. C. personal income. D. disposable income.

B

72. Nominal GDP is: A. the sum of all monetary transactions that occur in the economy in a year. B. the sum of all monetary transactions involving final goods and services that occur in the economy in a year. C. the amount of production that occurs when the economy is operating at full employment. D. money GDP adjusted for inflation.

B

74. Refer to the above graphs. Stanville has a comparative advantage in producing: A. product A. B. product B. C. both product A and B. D. neither product A nor B.

B

76. In the above diagram, a shift from AS2 to AS3 might be caused by a(n): A. decrease in interest rates. B. increase in business taxes and costly government regulation. C. decrease in the prices of domestic resources. D. decrease in the price level.

B

8. Which of the following is associated with macroeconomics? A. an examination of the incomes of Harvard Business School graduates B. an empirical investigation of the general price level and unemployment rates since 1990 C. a study of the trend of pecan prices since the Second World War D. a case study of pricing and production in the textbook industry

B

9. Macroeconomics can best be described as the: A. analysis of how a consumer tries to spend income. B. study of the large aggregates of the economy or the economy as a whole. C. analysis of how firms attempt to maximize their profits. D. study of how supply and demand determine prices in individual markets.

B

98. The basis for the Bretton Woods international monetary system was: A. a completely fixed system of exchange rates. B. an adjustable peg system of exchange rates. C. the gold standard. D. a freely flexible system of exchange rates.

B

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.3. Refer to the above information. The labor force in Scoob is: A. 95 million. B. 102 million. C. 105 million. D. 145 million.

B

12. The cyclically-adjusted budget refers to: A. the inflationary impact that the automatic stabilizers have in a full-employment economy. B. that portion of a full-employment GDP that is not consumed in the year it is produced. C. the size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment. D. the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.

C

13. The process of producing and accumulating capital goods is called: A. money capital. B. depreciation. C. investment. D. consumption.

C

14. A production possibilities curve shows: A. that resources are unlimited. B. that people prefer one of the goods more than the other. C. the maximum amounts of two goods that can be produced, assuming the full use of available resources. D. combinations of capital and labor necessary to produce specific levels of output.

C

15. If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: A. $360 billion. B. $660 billion. C. $320 billion. D. $20 billion.

C

17. Inflation means that: A. all prices are rising, but at different rates. B. all prices are rising and at the same rate. C. prices on average are rising, although some particular prices may be falling. D. real incomes are rising.

C

18. The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: A. 2.8 percent. B. 3.4 percent. C. 1.6 percent. D. 4.1 percent.

C

19. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400: A. there will be a budget deficit. B. there will be a budget surplus. C. the budget will be balanced. D. the macroeconomy will be in equilibrium.

C

2. Discretionary fiscal policy refers to: A. any change in government spending or taxes that destabilizes the economy. B. the authority that the President has to change personal income tax rates. C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. D. the changes in taxes and transfers that occur as GDP changes.

C

2. Most economists agree that the immediate determinant of the volume of output and employment is the: A. composition of consumer spending. B. ratio of public goods to private goods production. C. level of total spending. D. size of the labor force.

C

20. Which of the following is the best example of public investment? A. salaries of Senators and Representatives B. government expenditures on food stamps C. construction of highways D. funding of regulatory agencies

C

21. (Last Word) A caller to a radio talk show states that protesters against globalization are a collection of "anarchist punks, naïve college students, and trade union radicals." This is an example of: A. the fallacy of composition. B. the economic perspective. C. loaded terminology. D. marginal analysis.

C

24. Inflation initiated by increases in wages or other resource prices is labeled: A. demand-pull inflation. B. demand-push inflation. C. cost-push inflation. D. cost-pull inflation.

C

26. The market system is an economic system that: A. Produces more consumer goods than capital goods B. Produces more capital goods than consumer goods C. Gives private individuals the right to own resources used in production D. Emphasizes the government's power to control markets and direct economic activity

C

27. The 45-degree line on a graph relating consumption and income shows: A. all points where the MPC is constant. B. all points at which saving and income are equal. C. all the points at which consumption and income are equal. D. the amounts households will plan to save at each possible level of income.

C

30. Refer to the above list. Which of the following are considered to be "near-monies?" A. items 2, 5, 8, and 9 B. all items except for 3 C. items 2, 4, 7, and 8 D. items 1, 5, and 10

C

30. Which statement is correct? A. In a market system, buyers and sellers must be in face-to-face contact with each other B. Prices affect the distribution of goods in a market system but not the allocation of resources C. In a market system, prices serve to ration goods and services to consumers D. The operation of a market system has little, if any, effect on the distribution of income in the economy

C

36. Refer to the above diagram. The marginal propensity to consume is equal to: A. AE/0E. B. CF/CD. C. CB/AB. D. CD/CF.

C

37. Which of the following statements best describes the twelve Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C

38. Which of the following equations correctly represents the above data? A. Yd = 40 + .6C B. C = 60 + .4Yd C. C = 40 + .6Yd D. C = .6Yd

C

4. Contractionary fiscal policy is so named because it: A. involves a contraction of the nation's money supply. B. necessarily reduces the size of government. C. is aimed at reducing aggregate demand and thus achieving price stability. D. is expressly designed to expand real GDP.

C

40. A market: A. reflects upsloping demand and downsloping supply curves. B. entails the exchange of goods, but not services. C. is an institution that brings together buyers and sellers. D. always requires face-to-face contact between buyer and seller.

C

41. A rightward shift of the investment demand curve might be caused by: A. an increase in the price level. B. a decline in the real interest rate. C. businesses planning to increase their stock of inventories. D. an increase in business taxes.

C

43. If the MPC is .6, the multiplier will be: A. 4.0. B. 6.0. C. 2.5. D. 1.67.

C

44. Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by: A. $3 billion. B. $2/3 billion. C. $6 billion. D. $2 billion.

C

44. Refer to the above data. Equilibrium price will be: A. $4. B. $3. C. $2. D. $1.

C

46. Refer to the above table. The marginal propensity to consume is: A. .5. B. .75. C. .8. D. .9.

C

47. Commercial banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create checkable deposits in exchange for IOUs. D. raise their interest rates.

C

49. The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.

C

5. The phase of the business cycle in which real GDP declines is called: A. the peak. B. an expansion. C. a recession. D. the trough.

C

5. Which one of the following expressions best states the idea of opportunity cost? A. "A penny saved is a penny earned." B. "He who hesitates is lost." C. "There is no such thing as a free lunch." D. "All that glitters is not gold."

C

50. Refer to the above diagram for a private closed economy. In this economy investment: A. decreases as GDP increases. B. increases as GDP increases. C. is $40 billion at all levels of GDP. D. is $60 billion at all levels of GDP.

C

50. Refer to the above diagram. A government-set price floor is best illustrated by: A. price A. B. quantity E. C. price C. D. price B.

C

52. Refer to the above diagram for a private closed economy. The MPC and MPS are: A. .6 and .4 respectively. B. .7 and .3 respectively. C. both .5. D. both .7.

C

52. Refer to the above diagram of the market for money. The downward slope of the money demand curve Dmis best explained in terms of the: A. transactions demand for money. B. direct or positive relationship between bond prices and interest rates. C. asset demand for money. D. wealth or real-balances effect.

C

54. Investment and saving are, respectively: A. income and wealth. B. stocks and flows. C. injections and leakages. D. leakages and injections.

C

58. In the United States monetary policy is the responsibility of the: A. U.S. Treasury. B. Department of Commerce. C. Board of Governors of the Federal Reserve System. D. U.S. Congress.

C

6. A well-tested economic theory is often called: A. an hypothesis. B. a prototype. C. a principle. D. an anomaly.

C

60. The largest component of total expenditures in the United States is: A. net exports. B. government purchases. C. consumption. D. gross investment.

C

62. If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will: A. decrease GDP by $20. B. decrease GDP by $40. C. increase GDP by $20. D. increase GDP by $40.

C

64. Which of the following statements is true? A. The Federal Reserve sets the Federal funds rate. B. The Federal Reserve sets the target for the Federal funds rate, and then uses the reserve ratio to push banks toward that target. C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations. D. The Federal Reserve will set a higher target for the Federal funds rate if pursuing an expansionary monetary policy.

C

66. According to the Taylor rule: A. for every 1 percentage point that unemployment exceeds the natural rate of unemployment, there is a 2 percentage point gap between potential and actual GDP. B. growth in the money supply should be limited to the long-run average growth rate of real GDP. C. if inflation rises by 1 percentage point above its target, then the Fed should raise the real Federal funds rate by one-half a percentage point. D. the rate of money growth should be set at 4 percent per year.

C

66. The gross domestic product for the above economy is: A. $100. B. $95. C. $110. D. $107.

C

68. (Last Word) In The General Theory of Employment ,Interest, and Money: A. Adam Smith stated his idea of the invisible hand. B. Thorstein Veblen poked fun at the leisure class. C. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself. D. J. B. Say developed "Say's law."

C

68. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD2, they should: A. increase the interest rate from 3 percent to 9 percent. B. increase the money supply from $100 to $120. C. decrease the money supply from $120 to $100. D. decrease the interest rate from 3 percent to 9 percent.

C

69. Which of the following is least likely to be a problem for monetary policy? A. The recognition lag. B. The operational lag. C. The administrative lag. D. Cyclical asymmetry.

C

70. The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

C

71. On the basis of the above information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

C

71. The interest-rate effect suggests that: A. a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

C

72. The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A. real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C. determinants of aggregate demand. D. sole determinants of the equilibrium price level and the equilibrium real output.

C

74. In the above diagram, the economy's immediate-short-run aggregate supply curve is shown by line: A. 1. B. 2. C. 3. D. 4.

C

75. The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

C

76. Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n): A. protective tariff. B. export subsidy. C. import quota. D. voluntary export restriction.

C

77. Suppose a nation's 2010 nominal GDP was $972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be: A. deflated to $678 billion. B. deflated to $896 billion. C. inflated to $1080 billion. D. deflated to $1080 billion.

C

93. Appreciation of the Canadian dollar will: A. intensify an existing disequilibrium in Canada's balance of payments. B. make Canada's exports less expensive and its imports more expensive. C. make Canada's exports more expensive and its imports less expensive. D. make Canada's exports and imports both more expensive.

C

97. The exchange rate system currently used by the industrially advanced nations is: A. the gold standard. B. the Bretton Woods system. C. the managed float. D. a fixed rate system.

C

10. Refer to the above diagram. If the full-employment level of GDP is D, then it would be appropriate fiscal policy for government to: A. decrease spending and increase taxes. B. decrease spending and decrease taxes. C. increase spending and increase taxes. D. increase spending and decrease taxes.

D

13. A college graduate using the summer following graduation to search for a job would best be classified as: A. not officially a member of the labor force. B. a part of structural unemployment. C. a part of cyclical unemployment. D. a part of frictional unemployment.

D

16. Okun's law: A. measures the tradeoff between the rate of inflation and the rate of unemployment. B. indicates the number of years it will take for a constant rate of inflation to double the price level. C. quantifies the relationship between nominal and real incomes. D. shows the relationship between the unemployment rate and the size of the negative GDP gap.

D

17. Which of the following fiscal policy actions is most likely to increase aggregate supply? A. An increase in personal income tax rates. B. A reduction in interest rates that encourages consumers to purchase more durable goods. C. An increase in transfer payments to unemployed workers. D. An increase in government spending on infrastructure that increases private sector productivity.

D

18. The U.S. public debt: A. refers to the debts of all units of government—Federal, state, and local. B. consists of the total debt of U.S. households, businesses, and government. C. refers to the collective amount that U.S. citizens and businesses owe to foreigners. D. consists of the historical accumulation of all past Federal deficits and surpluses.

D

19. (Last Word) The fallacy of composition is essentially the error of: A. omitting relevant variables in constructing a model. B. reasoning from the general to the particular. C. confusing cause and effect in economic relationships. D. generalizing from the particular to the general.

D

20. (Last Word) The post hoc, ergo propter hoc fallacy suggests that: A. positive statements are always followed by normative judgments. B. positive statements can never be proven true or false. C. if one acts on one's expectations, those expectations will always be fulfilled. D. cause and effect can be determined merely by observing the sequence of events.

D

21. Given the annual rate of inflation, the "rule of 70" allows one to: A. determine whether the inflation is demand-pull or cost-push. B. calculate the accompanying rate of unemployment. C. determine when the value of a real asset will approach zero. D. calculate the number of years required for the price level to double.

D

23. The paper money used in the United States is: A. National Bank Notes. B. Treasury Notes. C. United States Notes. D. Federal Reserve Notes.

D

25. Currency held in the vault of First National Bank is: A. counted as part of M1. B. counted as part of M2, but not M1. C. only counted as part of M1 if it was deposited into a checking account. D. not counted as part of the money supply.

D

26. The most important determinant of consumer spending is: A. the level of household borrowing. B. consumer expectations. C. the stock of wealth. D. the level of income.

D

29. An economic system in which money is not used is a: A. Planned economy B. Market economy C. Mixed economy D. Barter economy

D

31. (Advanced analysis) If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed: A. the vertical intercept would be +.6 and the slope would be +20. B. it would reveal an inverse relationship between consumption and disposable income. C. the vertical intercept would be negative, but consumption would increase as disposable income rises. D. the vertical intercept would be + 20 and the slope would be + .6.

D

31. Which of the following statements is correct? A. The operation of a market system eventually results in an equal distribution of income B. Producers are "kings" in a market economy because they determine what is produced C. The market system is efficient at allocating resources, but not at distributing products D. Freedom of choice and enterprise are essential elements of the market system

D

35. The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the: A. Federal Deposit Insurance Corporation (FDIC). B. Federal Bond Sale Authority. C. Council of Economic Advisers. D. Federal Open Market Committee (FOMC).

D

36. Issues of the distribution of goods and services and of incomes in a market system are the primary topics of which fundamental question? A. What is to be produced? B. How is the output to be produced? C. How can the system accommodate change? D. Who is to receive the output?

D

36. The members of the Federal Reserve Board: A. serve seven-year terms. B. are appointed by the American Economic Association. C. are elected by votes of the 12 presidents of the Federal Reserve Banks. D. are appointed for 14-year terms.

D

39. A major problem with state ownership of resources is that it does not: A. Allow for the full use of central economic planning B. Let state enterprises buy resources used to make products C. Let state enterprises sell products produced with those resources D. Give incentives for individuals to make the best use of those resources

D

4. The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: A. military goods and capital goods. B. services and nondurable consumer goods. C. clothing and education. D. capital goods and durable consumer goods.

D

40. Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D

41. TARP, created in 2008, stands for: A. Toxic Asset Relief Program B. Troubled Asset Recovery Plan C. Toxic Asset Reinvestment Policy D. Troubled Asset Relief Program

D

42. Most modern banking systems are based on: A. money of intrinsic value. B. commodity money. C. 100 percent reserves. D. fractional reserves.

D

42. Which of the following would shift the investment demand curve from ID1 to ID2? A. a lower interest rate B. lower expected rates of return on investment C. a higher interest rate D. higher expected rates of return on investment

D

43. A bank that has liabilities of $150 billion and a net worth of $20 billion must have: A. excess reserves of $130 billion. B. assets of $150 billion. C. excess reserves of $150 billion. D. assets of $170 billion.

D

45. Excess reserves refer to the: A. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. B. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. C. difference between actual reserves and loans. D. difference between actual reserves and required reserves.

D

45. If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A. GDP by $120 billion. B. GDP by $20 billion. C. saving by $25 billion. D. consumption by $80 billion.

D

45. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units.

D

48. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? A. A only. B. B only. C. C only. D. D only.

D

48. Which of the following is correct? A. Both the granting and repaying of bank loans expand the aggregate money supply. B. Granting and repaying bank loans do not affect the money supply. C. Granting a bank loan destroys money; repaying a bank loan creates money. D. Granting a bank loan creates money; repaying a bank loan destroys money.

D

51. (Consider This) Ticket scalping refers to: A. the surplus of tickets that occurs when price is set below equilibrium. B. the shortage of tickets that occurs when price is set above equilibrium. C. pricing tickets so high that an athletic or artistic event will not be sold out. D. reselling a ticket at a price above its original purchase price.

D

57. If the above economy was closed to international trade, the equilibrium GDP and the multiplier would be: A. $300 and 5. B. $350 and 4. C. $400 and 4. D. $350 and 5.

D

57. The concept of net domestic investment refers to: A. the amount of machinery and equipment used up in producing the GDP in a specific year. B. the difference between the market value and book value of outstanding capital stock. C. gross domestic investment less net exports. D. total investment less the amount of investment goods used up in producing the year's output.

D

58. Refer to the above table. For the open economy the equilibrium GDP and the multiplier are: A. $300 and 2.5. B. $450 and 5. C. $400 and 4. D. $400 and 5.

D

60. Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply: A. contracts and commercial bank reserves increase. B. expands and commercial bank reserves decrease. C. contracts and commercial bank reserves decrease. D. expands and commercial bank reserves increase.

D

61. If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by: A. $1 billion. B. $.9 billion. C. $10 billion. D. $9 billion.

D

63. The interest rate that banks charge one another on overnight loans is called the: A. discount rate. B. prime lending rate. C. overnight lending rate. D. Federal funds rate.

D

65. The prime interest rate: A. affects investment spending while the Federal funds rate affects consumption spending. B. affects consumption spending while the Federal funds rate affects investment spending. C. has no affect on exchange rates and net exports. D. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

D

66. Refer to the above diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE1, the: A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. inflationary expenditure gap is zero. D. inflationary expenditure gap is ei.

D

69. The aggregate demand curve: A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. is downsloping because production costs decline as real output increases. C. shows the amount of expenditures required to induce the production of each possible level of real output. D. shows the amount of real output that will be purchased at each possible price level.

D

7. If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by: A. reducing government expenditures by $12 billion. B. reducing government expenditures by $60 billion. C. increasing taxes by $15 billion. D. increasing taxes by $20 billion.

D

7. Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? A. Unexpected financial bubbles that eventually burst. B. Shocks to the money supply by the nation's central bank. C. Supply shocks caused by major innovations. D. All of these are identified as causes of business cycle changes.

D

72. Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma? A. 1 tea = 2 pots to 1 tea = 6 pots B. 1 tea = 3 pots to 1 tea = 6 pots C. 1 tea = 2 pots to 1 tea = 3.5 pots D. 1 tea = 1 pot to 1 tea = 3 pots

D

73. Real GDP refers to: A. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B. GDP data that embody changes in the price level, but not changes in physical output. C. GDP data that reflect changes in both physical output and the price level. D. GDP data that have been adjusted for changes in the price level.

D

75. Refer to the above data. Real GDP in year 3 is: A. $100. B. $450. C. $225. D. $150.

D

75. Refer to the above diagram pertaining to two nations and a specific product. Lines FA and GB are: A. domestic supply curves for two countries. B. domestic demand curves for two countries. C. import demand curves for two countries. D. export supply curves for two countries.

D

77. The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

D

78. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. If the economy is opened to free trade, the price and quantity sold of this product would be: A. Pc and v. B. Pa and z. C. Pt and y. D. Pc and z.

D

79. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2and AS2 are the "after" curves. A recession is depicted by: A. panel (A) only. B. panel (B) only. C. panel (C) only. D. panels (A) and (B).

D

8. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in Federal tax rates on personal and corporate income.

D

80. The economy above has experienced a: A. declining nominal GDP. B. rising price level. C. declining real GDP. D. rising real GDP.

D

81. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. A tariff of PcPtor an import quota of wy will have the same effect on: A. the volume of imports. B. the domestic price. C. the revenues of domestic producers. D. all of these.

D

9. A contractionary fiscal policy is shown as a: A. rightward shift in the economy's aggregate demand curve. B. rightward shift in the economy's aggregate supply curve. C. movement along an existing aggregate demand curve. D. leftward shift in the economy's aggregate demand curve.

D

90. A market in which the money of one nation is exchanged for the money of another nation is a: A. resource market. B. bond market. C. stock market. D. foreign exchange market.

D

92. Depreciation of the dollar will: A. decrease the prices of both U.S. imports and exports. B. increase the prices of both U.S. imports and exports. C. decrease the prices of U.S. imports, but increase the prices to foreigners of U.S. exports. D. increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.

D

94. The U.S. demand for British pounds is: A. downsloping because a higher dollar price of pounds means British goods are cheaper to Americans. B. downsloping because a lower dollar price of pounds means British goods are more expensive to Americans. C. upsloping because a lower dollar price of pounds means British goods are cheaper to Americans. D. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

D

96. The idea that freely floating exchange rates equate the buying power of national currencies is called: A. the equation of exchange. B. the balance of payments. C. Say's Law. D. the purchasing power parity theory.

D

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. 79. Refer to the above data. If year 3 is chosen as the base year, the price index for year 1 is: A. 140. B. 40. C. 167. D. 60.

D


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