ECON100TEST3
The figure to the right shows the U.S. market for flip-flops. With international trade, the equilibrium price in the United States is ________ and the United States ________ flip-flops.
$12; imports
The figure shows the U.S. market for wheat. When there no international trade, the U.S. price of wheat is ________ per ton and the U.S. equilibrium quantity is ________ tons.
$14; 500,000
If the price level is 100 in one year and rises to 102 the next year, then the inflation rate is
2.0 percent.
________ occurs when a foreign firm sells its exports at a lower price than its cost of production.
Dumping
Because money growth is a major component determining the inflation rate, in order to forecast inflation we should forecast actions by the
Fed.
If supporters of restrictions on imports argue that protection is needed to preserve a strategic industry; which of the following is being used?
National security argument.
When an economy experiences a recession there is
a downward movement along the short-run Phillips curve.
A rational expectation of the inflation rate is
a forecast based on the forecasted actions of the Fed and other relevant determinant factors.
One of the major reasons why the United States exports jet airplanes is because Boeing faces ________ opportunity cost than firms in other nations in the production of such aircraft.
a lower
The United States imports t-shirts from Asia. As a result, U.S. consumers pay ________ otherwise and Asian producers receive ________ otherwise.
a lower price than; a higher price than
An increase in aggregate demand results in
a lower unemployment rate and a higher price level.
A decrease in taxes should be applied in a situation with
a recessionary gap.
A fall in the federal funds rate leads to
a rise in the price level.
Discretionary fiscal policy is a fiscal policy action, such as
a tax cut, initiated by an act of Congress.
A country reports that its inflation rate and unemployment rate have both increased. These changes could be the result of
an upward shift of the short-run Phillips curve.
The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the economy is
at full employment.
Comparing the aggregate supply curve and the short-run Phillips curve, we see that they
both exist because money wage rates are fixed in the short run.
Who gains from international trade?
both the importing and the exporting nations
When the Fed ________, the U.S. foreign exchange rate falls
buys government securities
The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is
called fiscal policy
Automatic stabilizers include
changes in induced taxes and changes in needs tested spending.
If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?
cut taxes
The long-run Phillips curve represents the relationship between the inflation rate and the unemployment rate when there is no ________ unemployment.
cyclical
Which of the following is an example of a fiscal stimulus?
decrease in taxes
If the Fed fears inflation, it ________ by ________ government securities.
decreases aggregate demand; selling
An income tax hike
decreases potential GDP.
When a nation starts importing a good or service, domestic employment in that industry
decreases.
The short-run Phillips curve is
downward sloping.
On the long-run Phillips curve, the unemployment rate
equals the natural unemployment rate but the inflation rate can be any value.
The Fed raises the federal funds rate. Which of the following changes occurs most rapidly?
exchange rate rises
The inflation rate that is used to set the money wage rate and other money prices is the
expected inflation rate.
The figure shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will ________.
fall to 4 percent a year
After a nation starts importing a good from overseas, the domestic price of the good
falls.
The interest rate banks charge each other on loans of reserves is called the
federal funds rate.
A major factor in determining the rational expectation of inflation is
forecasts of the Fed's monetary policy.
When the government's outlays exceed its tax revenue, the national debt
grows to finance the budget deficit.
President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply side? i. decrease the quantity of money ii. lower taxes iii. lower the interest rate.
ii only
A cyclical deficit is the budget deficit that occurs when i. actual output is at potential output. ii. the economy is at full-employment output. iii. tax revenues and outlays are not at their full-employment levels.
iii only.
Needs-tested spending
includes transfer payments such as food stamps and unemployment benefits.
During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative. Which would have been the appropriate federal government policy combination to improve economic performance?
increase government expenditure, decrease taxes, increase the quantity of money
Which of the following is an example of an automatic fiscal policy action?
increased unemployment payments resulting from higher unemployment
Needs-tested spending
increases as unemployment increases.
If government expenditure on goods and services increase by $100 billion, then aggregate demand
increases by more than $100 billion.
If government expenditure on goods and services increase by $10 billion, then aggregate demand
increases by $10 billion multiplied by the government expenditure multiplier.
When a nation exports a good or service in which it has a comparative advantage, employment in that industry
increases.
When a nation exports a good or service in which it has a comparative advantage, production of the good or service
increases.
Moving along a short-run Phillips curve, a reduction in the unemployment rate is achieved by
increasing the inflation rate.
When the economy is in a recession, ________ taxes decrease while ________ spending increases and, as a result of this automatic fiscal policy, aggregate demand ________.
induced; needs tested; increases
Discretionary fiscal policy is defined as fiscal policy
initiated by an act of Congress.
In the short run, if the economy is at full employment, then the quantity of real GDP
is equal to potential GDP, and the unemployment rate is equal to the natural unemployment rate.
The Federal Reserve monetary policy goals of maximum employment means
keeping the unemployment rate close to the natural unemployment rate.
Discretionary fiscal policy is handicapped by
law making time lags, estimation of potential GDP, and economic forecasting.
The infant-industry argument for protection is based on the idea of
learning-by-doing.
A nation has a comparative advantage in a good when it has a
lower opportunity cost of producing the good.
Discretionary monetary policy has the drawback that it
makes inflation expectations harder to manage.
If we look at the federal government budget over the past 40 years we see that
most years the budget has been in deficit.
Suppose monetary policy results in the exchange rate falling. As a result,
net exports increase.
When the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?
other short-term interest rates
Automatic stabilizers are defined as
policy that stabilizes without the need for action by the government.
Maximum employment and moderate long-term interest rates are best achieved with
price stability.
In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?
raise taxes
When the Federal Reserve wants to slow inflation, it
raises the federal funds rate target.
The figure shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will ________.
rise to 6 percent a year
After a tariff is imposed on a good, the price of the good
rises.
In the long run, the real interest rate is determined by
saving supply and investment demand.
When the natural unemployment rate increases, the short-run Phillips curve ________ and the long-run Phillips curve ________.
shifts rightward; shifts rightward
If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment rate, in the long run the SRPC ________ and the LRPC ________
shifts upward; does not change
If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment rate, in the long run the SRPC ________ and the LRPC ________.
shifts upward; does not change
Along a short-run Phillips curve, the
short-run cost of lower unemployment is higher inflation.
Induced taxes are defined as taxes
that vary with real GDP.
Control of monetary policy rests with
the Federal Reserve.
One problem with the ripple effect from the Fed's monetary policy is
the fact that the monetary policy transmission process is long and drawn out.
Which of the following is the Fed's monetary policy instrument?
the federal funds rate
If the Fed buys U.S. government securities,
the federal funds rate will fall.
The short-run Phillips curve is a curve that shows the relationship, other things being constant, between ________ and ________.
the inflation rate; the unemployment rate
The expected inflation rate is the inflation rate that people forecast and use to help set
the money wage rate.
The long-run Phillips curve is a vertical line because
there is no relationship between the natural unemployment rate and the inflation rate.
When people use all the relevant data and principles of economics to forecast inflation, they are making
what is called a "rational expectation."
If the world price of a good is below the no trade domestic price, a country
will benefit from importing the good.
The figure shows the U.S. market for wheat. With international trade, U.S. consumers buy ________ tons of wheat and U.S. producers produce ________ tons of wheat.
300,000; 700,000
The figure shows the U.S. market for flip-flops. With international trade, the United States imports ________ flip-flops.
400,000
In an open market purchase, the Fed ________ government securities, which ________ bank reserves and ________ the federal funds rate.
buys; increases; lowers
Government expenditure ________ change potential GDP and taxes ________ change potential GDP.
can; can
If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.
cutting; increasing
Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.
decrease; be unchanged
Ignoring any supply-side effects, when taxes are hiked, real GDP ________ and the price level _______
decreases; falls
Which of the following is a monetary policy goal? i. keeping the inflation rate low ii. attaining maximum employment iii. keeping the long-term interest rate at a moderate level
i, ii, and iii
Transfer payments include i. Social Security benefits ii. Medicare and Medicaid benefits iii. Unemployment benefits
i, ii, and iii.
A country with a comparative advantage in the production of a good will ________ production of the good and ________.
increase; export the good
An increase in the supply of bank loans ________ the supply of loanable funds so the real interest rate ________ and investment ________.
increases; falls; increases
The supply-side effects show that a tax cut on labor income ________ the supply of labor and ________ employment.
increases; increases
When the Fed lowers the federal funds rate, the quantity of money ________ and the supply of loanable funds ________.
increases; increases
Raising the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________.
leftward; decreases; falls
When tax revenue ________ outlays is negative, then the government has a budget ________.
minus; deficit
A government budget deficit ________ the ________ interest rate and crowds out private investment, which ________ real GDP growth.
raises; real; slows
When an import quota is imposed on tomatoes, the price of tomatoes ________ and the quantity bought ________, so domestic consumers ________.
rises; decreases; lose
When the expected inflation rate ________, the short-run Phillips curve ________.
rises; shifts upward
