Macroeconomics Final
Given a required reserve ratio of 20 percent for all banks, total bank reserves of $300 billion could support maximum deposits of:
$1,500 billion.
Suppose that a consumer has a health insurance program with $10 co-payment per doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor for 6 visits is $360, the cost per visit paid by a third party is:
$50.
If the price of bread decreases from $5 to $4 per loaf and the demand for butter increases from 400 to 600 sticks of butter, the cross price elasticity between the two goods is:
-2.5 and the two goods are complements
Suppose that the price of tea has currently increased from $1 to $2. As this change is taking place, the neighborhood Starbucks store noticed that the demand for their coffee has increased from 800 cups a day to 1000 cups a day. What is the cross price elasticity of demand for coffee in response to a rise in the price of tea?
1/4
The formula for the money multiplier is:
1/r where r is the reserve ratio.
Suppose that this week there were 200 Angry Birds dolls sold at the price of $10 each. Next week, the price of these dolls is expected to rise to $11. The Price elasticity of demand was calculated to be -0.8. How many Angry Birds will be sold next week?
184
If the price for apples increases from $1 to $1.50 per pound and the demand for pears increases from 500,000 to 1,000,000 pounds per year, the cross price elasticity between the two goods is:
2 and the two goods are substitutes.
Suzy Q works as a waitress part-time (18 hours per week) while attending college. Her generous manager just announced that he will raise her hourly wage from $5.50 to 5.85. With her newfound higher income, Suzy spends more at the iTunes store every week. Previously, she purchased 9 songs per week; now, she buys 13 songs per week. The iTunes store charges $1 per song. What is her income elasticity of demand for iTunes and does it represent a normal or luxury good?
6.98 : Luxury.
A reserve ratio of 0.10 means that a bank can lend an amount equal to:
90 percent of its deposit liabilities.
Which of the following factors will shift the long-run aggregate supply curve?
A change in available resources
Which of the following monetary policies raises aggregate demand and output?
A cut in the reserve requirement
Which of the following would shift the aggregate demand curve to the left?
A decrease in exports
Assuming the retailer pays the sales tax, why does sales volume rise during weeks when states suspend taxes on sales by retailers?
A reduction in taxes shifts the supply curve to the right.
Which of the following is the best example of an excise tax?
A tax collected on each gallon of gasoline sold. An excise tax is a tax that is levied on a specific good, like gasoline. Taxes on capital gains, employment taxes, and export taxes are not good examples of an excise tax.
"It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest." The preceding quote was made by:
Adam Smith.
Which of the following is not an example of an externality?
An increase in apartment rent rates forcing people to find housing elsewhere.
Which of the following factors will not shift the long-run aggregate supply curve?
An increase in the price level
Franklin works as a part-time legal assistant. She consumes 8 hamburgers and 1 steak every month. After 2 years, she gets promoted to a full-time salaried position. Her hamburger consumption falls to 4 per month and her steak consumption increases to 5 per month. Here, the hamburger is an example of:
An inferior good
Why is price directly related to quantity supplied?
As price rises, suppliers rearrange their activities to supply more of that good in order to take advantage of the higher price. correct
Mercantilists maintained that above certain income level, people would no longer respond to the incentive of a higher wage. This can be demonstrated by:
Backward bending supply curve.
Mary has just stated that normally, as price rises, supply will increase. Her teacher grimaces. Why?
Because as price rises, quantity supplied will increase, not supply will increase.
In early 2000s, oil prices were rising because of concern about the Iraqi and other situations, along with rapid growth in demand in the Far East. Prices eventually reached over $100 a barrel. How would most economists predict these high prices should affect the U.S. economy in terms of the AD/AS model?
Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve up (to the left).
In what way is the market for public post-secondary education an example of a third-party-payer market?
Because students don't pay the entire cost of the education.
Which of the following statements is correct?
Both stocks and bonds are financial assets.
How does a market economy solve the how to produce problem?
Businesses decide how to produce guided by what they believe will earn them the largest profit.
How does a market economy solve the what to produce problem?
Businesses decide what to produce based on what they think will sell and earn profit for the business.
Identify four shift factors of demand with the correct explanation of how each affects demand.
Change in taxes paid by consumers. As taxes rise, demand falls. Change in income. As income rises, demand for a normal good increases. Producers expect prices of their products to rise in the future. As the price that producers expect to sell their products for increases, demand increases. Change in consumer tastes. As the taste for a product rises, demand increases.
Which of the following statements is correct?
Corporations are legal entities that, in law, are treated as persons.
The oil crisis of the 1970s, where OPEC increased prices of petroleum from $1.80 a barrel in 1970 to $34 a barrel in 1978, is an example of:
Cost-push inflation. When demand is inelastic in the short run and elastic in the long run
Which economist is credited with developing the theory of comparative advantage in support of international trade?
David Ricardo.
Which of these economic thinkers was NOT a Utopian?
David Ricardo.
Which of the following is NOT a characteristic of the Industrial Revolution?
Decline of the middle class.
Which of the following has been an effect of globalization and a large trade deficit?
Decreased employment in the tradable sector
If a 40% fall in price leads to a 10% increase in quantity demanded:
Elasticity of demand is equal to 0.25
The invention of a machine that increases milk production is discovered. If farmers were to decry the effect of this new technology on the price of milk and lobby government to set the price of milk at the price before the invention, what would be the result?
Excess supply of milk
Feudalism and mercantilism relied on markets to solve the three main coordination problems.
False
Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market share. From this information, what would economists strongly suspect about this industry?
Foreigners have a comparative advantage in shrimping.
Even as the U.S. government ran large budget deficits in the early 2000s, the interest rate did not rise substantially. Which of the following is among the reasons that crowding out did not raise interest rates at that time?
Foreigners were willing to finance the U.S. deficit with their abundant supply of savings.
According to the structural stagnation hypothesis what is the long-run cause of the recent problems facing the United States?
Globalization.
Which of the following is a reason why government debt is different from individual debt?
Government can create money to finance its debt.
Carrie is a shoe shopping addict, thus her demand for trendy shoes is inelastic. However, because she cannot afford all the shoes she likes, she finds a better paying job. What is true about Carrie"s demand for shoes?
Her demand curve is very steep and will shift to the right after her increase in income.
Libertarians would align most closely with which of the following thoughts?
Human beings are self-interested beings, and private property and free markets are needed to provide protection and incentives to these individuals
Suppose the price of tomatoes dramatically increases. Which of the following could cause this change?
Hurricanes during the late summer damages the Florida crop, shifting supply left
In what way is government debt like individual debt?
Inflation reduces the real value of both types of debt.
Which of the following is an international financial institution concerned primarily with monetary issues and international financial arrangements?
International Monetary Fund
In the early 2000s, Ecuador replaced its currency, the sucre, with the U.S. dollar as its official currency to solve its inflation problem. As long as Ecuador maintains the U.S. dollar as its official currency, what will happen to the monetary policy of Ecuador?
It effectively will cease to exist.
What is the impact of this on total educational expenditures?
It increases total expenditures.
What is the primary benefit for the United States of a high price for the dollar in the foreign exchange market?
It makes foreign goods cheaper, helping consumers.
What would be the effect of raising the price of gasoline in the United States to $5 per gallon?
It will likely decrease the size of cars driven in the United States, increase U.S. use of public transportation, and increase the fuel efficiency of cars purchased in the United States.
The use of public transportation in the United States compared to Italy?
Italians likely use public transportation more than Americans use it
Which of the following is a disadvantage of the European Monetary Union to member countries?
Less monetary independence for each member
Why does the author suggest that students be ineligible for the guaranteed jobs program even though many students are in need?
Limiting eligibility reduces the cost of the program and students often seek only part-time employment.
Why are international organizations limited in their effectiveness?
Membership is voluntary and there is no world government to enforce the laws.
Economists Henry Saffer of Kean University, Frank J. Chaloupka of the University of Illinois at Chicago, and Dhaval Dave of Bentley College estimated that the government must spend $4,170 on drug control to deter one person from using drugs and the cost that one drug user imposes on society is $897. Based on this information alone, should the government spend the money on drug control?
No, since the marginal cost of drug control exceeds the marginal benefit, the government should not spend $4,170 to deter one person from using drugs.
If ticket prices for Metallica's concert rise by 20%, and the number of tickets sold falls by 10%, then the elasticity of demand is...
None of the above.
Which of the following Fed policies would help the economy out of a recession?
Open market purchases of government securities
Which of the following is most likely an action that supports competition?
Preventing two dominant firms in the same market from merging
Quotas are quantity restrictions on imported goods. Demonstrate the effect of a quota on the price of imported goods.
Prices will rise. Quantity will decline.
State the law of demand.
Quantity demanded rises as price falls, other things constant. Quantity demanded falls as price rises, other things constant.
State the law of supply.
Quantity supplied rises as price increases, other things constant. Quantity supplied falls as price decreases, other things constant.
Nepalese villagers sell their kidneys as a way to earn much-needed money. Unfortunately, although the demand for such kidneys in developed economies is high and the medical facilities are available to conduct kidney transplants, the selling and buying of organs is illegal. What idea from Chapter 1 of the text does this situation best illustrate?
Social and political forces sometimes rein in market forces.
Which of the following is not one of the functions of money?
Standard of economic well-being
Which of the following is not a reason why the AD curve slopes downward?
Substitution effect
OPEC announces it will increase oil production by 20 percent. What is the effect of this action on the price of oil now?
Supply will increase, causing the price of oil to fall
The fuel efficiency of cars in the United States compared to Italy?
The cars in Italy are most likely more fuel efficient than in the United States.
In the United States, say gasoline costs consumers about $2.50 per gallon. In Italy, say it costs consumers about $6 per gallon. What effect does this price differential likely have on: The size of cars in the United States compared to Italy?
The cars in Italy are most likely much smaller than in the United States.
Explain what a sudden popularity of "Economics Professor" brand casual wear would likely do to prices of that brand.
The increase in demand would lead to excess demand, which will lead to higher prices. The net result is a higher equilibrium price and quantity.
Which of the following is not one of the assumptions of the quantity theory of money?
The money growth rate is constant.
In a market economy, what is the central coordinating mechanism?
The price mechanism.
In most developing countries, there are long lines of taxis at airports, and these taxis often wait two or three hours for a customer. What does this tell you about the price in that market?
The price must be greater than the equilibrium price, causing excess supply.
Identify four shift factors of supply with the correct explanation of how each affects supply.
The price of inputs changes. As the price of inputs rises, supply decreases. When new production technologies are introduced the cost of production falls and supply increases. Producers expect prices of their products to change in the future. As the price that producers expect to sell their products for increases, supply decreases. Change in taxes paid by producers. As the amount of taxes that producers pay increases, supply decreases.
Demonstrate graphically why rent controls at, say P2, might increase the total payment that new renters pay for an apartment.
The rent control causes a shortage in the market. The impact of this rent control is that individuals are willing to pay far more than the controlled price. This key money is represented by P1 - P2.
Fishing for king crabs for a living is risky business. Their migration habits along the Bering Strait are just not understood. The king crabs seem to disappear one year but return mysteriously a few years later, wreaking havoc on the income of crabbers. When crabs disappear, consumers buy lobster instead. What best describes this situation in the king crab market?
The supply curve shifts to the left when crabs disappear (their price rises) and shift to the right when they reappear (their price declines).
Assume that Argentina imposes a 20 percent tax on natural gas exports. What does it likely do to the price of natural gas in Argentina?
The tax will likely reduce the price of natural gas in Argentina as more gas is diverted to the domestic market.
Liberal economists such as John Kenneth Galbraith, tend to believe that, in the U.S.
There are too many private goods and not enough public goods.
Say that the equilibrium price and quantity both rose. What would you say was the most likely cause?
There was an increase in demand and no change in supply.
Which of the following was a Marxist prediction?
There would be significant differentiation between workers and owners of factories.
How does a market economy solve the for whom to produce problem?
Those who are willing to pay for the goods and services at the market-determined prices will get them.
Demonstrate graphically the effect of an effective price ceiling.
To have an effective price ceiling, the price ceiling must be below the equilibrium price. An effective price ceiling causes a shortage in the market.
Demonstrate graphically why rent controls at, say P1, might increase the effect of an effective price floor.
To have an effective price floor, the price floor must be above the equilibrium price. An effective price floor causes a surplus in the market.
An increase in the federal funds rate is a signal that the Fed wants a tighter monetary policy.
True
As long as money serves as a medium of exchange, it also serves as a store of wealth.
True
Automatic stabilizers are government programs or policies that will counteract the business cycle without any new government action.
True
Businesses produce goods and services and sell them to households and governments. The market where this interaction takes place is called the goods market.
True
Economists who accept the quantity theory of money believe that inflation is always and everywhere a monetary phenomenon.
True
Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output.
True
In a market economy, society relies on the self-interest of individuals to determine what, how, and for whom to produce.
True
In the AS/AD model, as the price level falls, the holders of money become richer and buy more. This is one reason why the aggregate demand curve is downward sloping.
True
Private property rights are essential to market economies.
True
The distinction between capitalism and socialism is less relevant in the real world today than it was 30 years ago.
True
The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.
True
When a bank creates loans, it also creates money.
True
In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:
U.S. exports to Japan would decline and U.S. imports from Japan would rise.
Interest rates on government bonds are relatively low because:
U.S. government bonds are considered one of the safest assets in the world.
According to Max Weber in The Protestant Ethic and Spirit of Capitalism, why did Protestant countries achieve more economic dynamism than Catholic Countries?
Unlike the Catholic Church, Protestants did not look down upon money making. The protestant religion had fewer Saints' Days throughout the year, which translated into more work days. Protestants lived by the motto: "work hard and live simply." Protestant ethic promoted savings and a frugal lifestyle.
Which of the following cannot be determined by using a production possibility table?
What combination of outputs is best
Which of the following can be determined by cross elasticity of demand analysis:
Whether two goods are substitutes or complements.
World trade declined in the 1930s. Which of the following is the best explanation of that decline?
World income shrank, and trade restrictions increased.
Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any calls above 600 minutes. Mary has used 300 minutes this month so far. What is her marginal cost per minute of making two more calls lasting 10 minutes each?
Zero
Consumption of which of the following items in a crowded room is most likely to give rise to a negative externality?
a Cuban cigar.
A policy that raises taxes or reduces government spending is called:
a contractionary fiscal policy.
An increase in the price level might cause:
a decrease in the quantity of aggregate demand because of the interest rate effect.
If the price elasticity of demand is highly elastic, then an increase in the price of the good will lead to:
a decrease in total revenue for the firm
Example(s) of externalities are:
a polluted river.
New York City has been experiencing a housing emergency for quite some time. Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent since World War II. The most likely cause of the housing emergency is:
a price ceiling on rent lower than equilibrium price.
A good for which the consumption by one individual excludes completely the consumption of that very same unit of good is called:
a pure private good.
A fall in a foreign country's income will most likely cause:
a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left.
At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:
a short-run equilibrium but not necessarily a long-run equilibrium.
The most likely impact of an effective price floor is:
a surplus will develop. An effective price floor is above equilibrium price. At any price higher than equilibrium, quantity supplied exceeds quantity demanded, and there is a surplus of goods. A change in the price (even if imposed by government) will only lead to movements along the supply or demand curve, not shifts in supply or demand.
A tariff is:
a tax that government places on imported goods.
Keynesian economic tools are not adequately effective when
a trade-off exists between the rate of unemployment and the rate of inflation.
According to the AS/AD model, if the economy is in a recession and the Fed wants to increase output and employment, it should:
act to increase the money supply.
Assuming government's goal is to benefit society as much as possible:
actions with negative externalities should be restricted and actions with positive externalities should be encouraged.
The Neolithic Revolution was characterized by:
adoption of agriculture and domestication of animals.
Because reducing both unemployment and inflation simultaneously are conflicting goals:
aggregate demand policy will allow policymakers to achieve one of these objectives, but not both.
The short-run aggregate supply curve is upward sloping for all of the following reasons except:
all inputs are fully utilized in the short run.
Which of the following is NOT a reason for liquidity preference?
an equilibrium demand for money
In early 2000s, the dollar depreciated sharply against the euro and the yen. The dollar's depreciation should result in:
an increase in U.S. exports and an outward shift of the U.S. aggregate demand curve.
The paradox of thrift occurs when:
an increase in saving reduces output.
Contractionary fiscal policies are most appropriate when the economy is in:
an inflationary gap.
When hurricane Irene tore through the northeastern United States, destroying a significant portion of the Hudson Valley apple crop:
apple prices rose, and quantity sold fell.
Private property rights:
are essential elements of a market economy.
In 2009, output was beneath potential. At the same time, the budget deficit hit a record high of over $1 trillion. If President Obama were to pursue budget cuts, given the state of the economy, these spending cuts would:
be procyclical.
In the short-run framework, budget deficits should:
be run on a temporary basis whenever the economy is below potential output.
If the multiplier effect did not exist, the aggregate demand curve would:
be steeper.
Alan is sitting in a bar drinking beers that cost $1 each. According to the economic decision rule, Alan will quit drinking when the marginal:
benefit to him of an additional beer is less than $1.
Externalities are
benefits or costs not included in price.
A country can have a trade deficit as long as it can:
borrow from or sell assets to foreigners.
In principle, households ultimately control:
both businesses and the government.
The long-run aggregate supply curve shows the output level that an economy can produce when:
both capital and labor are fully employed.
With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:
both prices and quantities in the short run.
According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:
both production and prices.
Infant industry protection can be justified in theory by:
both the "learning by doing" argument and the existence of economies of scale.
Foreign governments are holding fewer dollars as reserves. As a result, the value of the dollar is declining. If foreign governments want to keep the U.S. dollar from declining, they could:
buy more U.S. dollars.
A government can finance its budget deficit by doing all of the following except:
buying bonds.
A primary goal of the World Bank is to:
channel low-interest loans to developing countries to foster economic growth.
Which of the following would most likely generate a negative externality?
cigarette smoke
In the former USSR, state planners decided what was to be produced. They passed orders down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a):
command economy.
The IMF often requires countries that borrowed from it to introduce policies that privatized government-owned industries such as telecommunications and power generation. This is an example of:
conditionality.
In developing countries, government expenditure levels are most closely related to:
considerations about what will keep the existing government in power.
A trade deficit allows a country to:
consume more than it produces.
When Coca Cola introduced a new, low-calorie version of Coca Cola called C2, despite a major marketing effort, sales of C2 were weak and many doubted that the product would last. Coke's experience with C2 illustrates the economic concept of:
consumer sovereignty.
A country that wants to increase its exchange rate to a higher level than the market exchange rate would most likely adopt:
contractionary monetary policy.
A large trade deficit that the United States has with China would be narrowed by a:
decline in the value of the U.S. dollar or by Chinese inflation.
The price elasticity of demand for tickets to a popular theater event is 3. If the price of a ticket increases by 10 percent, the quantity of tickets demanded will:
decrease by 30 percent.
Considering only its direct effect on income, contractionary fiscal policy tends to:
decrease income and imports and lower the trade deficit.
Excess reserves in March 2009 were 93 percent of total reserves, significantly higher than the rate in March 2008 of 6 percent. This increase is most likely to:
decrease the money supply.
If the federal government has a budget surplus in a given year, the national debt will:
decrease.
Adding globalization with large trade deficits to the standard AS/AD model shows:
decreased domestic production and increased consumption.
According to the AS/AD model, an expansionary monetary policy:
decreases interest rates, raises investment, and increases income.
The basic idea of crowding out is that a budget:
deficit will cause the interest rate to go up.
For the foreign exchange market, exports from the United States generate a:
demand for dollars and imports to the United States generate a supply of dollars.
Businesses do all of the following except:
demand goods and services from households in the goods market.
In the United States, government performs all of the following functions except:
determining production levels.
The balance of trade measures the:
difference between the value of imports and that of exports.
A quota differs from a tariff in that quotas:
do not generate tax revenues, unlike tariffs.
As the reserve ratio goes up, the money multiplier goes:
down, and less money will be created.
Because you can get more of one good only by giving up some of another good, the shape of a production possibility curve is:
downward-sloping.
From 2008 to 2009, the interest rate on 10-year government bonds fell to 2.75 percent, its lowest level in many years. This is most likely the result of:
easier monetary policy.
Which of the following would most likely generate a positive externality?
education
When the euro rose relative to the dollar in the early 2000s, it:
encouraged European imports and discouraged European exports.
You are holding $200 in cash with the objective to buy in the near future a video game that is about to be offered in the market, until you buy the game this type of savings is:
escaping the circular flow of the economy.
An increase in a balance of trade surplus tends to:
exert an expansionary effect on the economy.
Suppose most economists agree that the target rate of unemployment is between 4 and 7 percent. If the actual unemployment rate is 11 percent, then most economists would agree that:
expansionary monetary and fiscal policies are appropriate.
Considering only its direct effect on income, the effect of monetary policy is that:
expansionary policy tends to increase the trade deficit and contractionary policy tends to decrease it.
As the economy contracts, tax revenues:
fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers.
If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:
fall by 3 percent.
Suppose that at the current price consumers would like to purchase 10 million large-screen televisions and 15 million are available. When the market coordinates the demand and supply for large-screen televisions, the price of large-screen televisions will:
fall.
The interest rate banks charge each other to borrow excess reserves is called the:
federal funds rate.
The part of the balance of payments account that lists all long-term flows of payments is called the:
financial and capital account.
Countries are unlikely to maintain fixed exchange rates for long periods of time because:
fixed exchange rates impede a nation's ability to use monetary and fiscal policy to pursue domestic macroeconomic goals.
Higher U.S. interest rates usually cause:
foreign capital to enter the United States.
When the economy entered a serious recession in 2008, the response of the U.S. government was to institute a $700 billion bailout plan, pursue other heavy deficit spending, and take on unusually large liabilities through bond and money market fund guarantees. This is an example of:
functional finance and expansionary fiscal policy.
Structural stagnation focuses on _______ in terms of understanding why the economy experiences slow growth.
globalization
The goldsmith's ability to create money was based on the fact that:
gold receipts were rarely exchanged for gold.
External government debt is:
government debt owed to individuals in foreign countries.
If the economy is caught in a liquidity trap, the appropriate government response is:
government deficit spending
One of the reasons government debt is different from individual debt is:
government never really needs to pay back its debt.
By the 1950s, the views of the Classical economists among American economists:
had been largely eclipsed by Keynesian views.
The U.S. central bank is a financial institution that:
has the sole right to issue currency.
Deficits may be desirable in the short run if they:
help to stabilize the economy when the economy falls below potential output.
Stagflation is a combination of:
high and accelerating inflation and high unemployment.
If foreign producers can supply an infinite amount of tradable goods at the world price, this would imply that the world supply curve is:
horizontal.
A financial asset is liquid:
if it can be readily exchanged for another asset or good.
The inflation tax is an:
implicit tax on the holders of cash and the holders of assets specified in nominal terms.
A fall in the value of the dollar relative to other currencies will:
increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the right.
Considering only its direct effect on income, expansionary fiscal policy tends to:
increase imports.
When the Fed lowered the discount rate in late 2008 the action was ultimately designed to:
increase the money supply.
The quantity theory of money implies that an increase in the money supply will ultimately:
increase the price level and leave real GDP unchanged.
Taxi medallions were issued in New York City to:
increase the wages of taxi drivers.
If you have a price inelastic demand for notebooks and the notebook industry decides to jack up the price, the total revenue for the notebook producers will:
increase.
In the early 2000s, the Bush administration passed a series of tax cuts and spending increases. This combination of policies most likely:
increased the U.S. trade deficit.
The Industrial Revolution was important to the history of economic systems because it:
increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.
The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:
increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise.
A negative income elasticity of demand is representative of
inferior goods.
If potential output exceeds actual output, eventually:
input prices will fall and output will rise.
If actual output exceeds potential output, the economy:
is experiencing an inflationary gap.
The short-run aggregate supply is most likely to shift down (to the right) when actual output:
is less than potential output.
Governments are said to fine tune the economy when they attempt to use fiscal policy to:
keep the economy always at its target or potential level of income.
A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy increased to 6 percent. You are holding a bond that is:
less desirable to other investors.
The U.S. dollar bills you sometimes have in your wallet are:
liabilities of the Federal Reserve.
Macroeconomic policy is:
limited the most under fixed exchange rates.
In general, the IMF provides developing countries with:
loans but only if the government adopts certain policies specified by the IMF in return.
During the early years of the Reagan administration, some of the Reagan advisors argued that tax cuts could reduce inflation because they would give people an incentive to produce more. This argument implies that tax cuts move the:
long-run aggregate supply curve to the right.
IMF officials stated in 2009 that the Chinese currency, the renminbi, which is counted in yuan, was undervalued. By keeping its exchange rate low, the Chinese government helps:
lower Chinese imports but boost Chinese exports.
An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in:
macroeconomic research.
According to the quantity theory of money, persistent inflation can only be caused by:
money supply growth that exceeds real GDP growth.
In principle, socialism is:
more concerned about fairness than capitalism.
A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy decreased to 3 percent. You are holding a bond that is:
more desirable to other investors.
If the euro rises in price, it becomes:
more expensive for Americans to buy European products but cheaper for Europeans to buy American products.
A change in the price of a good causes a ______ along correct the demand curve. A _______ correct the demand curve means that the quantities will be different at all prices.
movement, shift
Which of the following is not a determinant of price elasticity of demand?
number of producers.
Developing countries would benefit the most from a given increase in their education budgets if they spent more:
on primary and secondary education.
The shapes of the curves in the AS/AD model are based:
on the relationship between the price level and total output.
When a U.S. company establishes a call center in India that answers its customer service calls, the United States is
outsourcing, a form of importing services
At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:
overutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left).
More than 10,000 people waited in line for more than two hours to see a titan arum (a rare flower) at Cambridge's Botanic Garden. An economist would conclude that:
people felt they got great benefit from seeing the flower.
Flu vaccinations of school children have the unintended effect of protecting the vulnerable elderly from contracting the virus. This is an example of a:
positive externality.
When my neighbors benefit from my cleaning up of my yard, they are experiencing a:
positive externality.
A recessionary gap exists when:
potential output exceeds actual output.
Market economies are based upon:
private property and individual planning.
Expansionary monetary policy generally:
pushes down the value of the U.S. dollar.
Contractionary monetary policy tends to:
raise the interest rate, raise capital inflows, and raise the value of the dollar.
A weaker dollar:
raises inflation and expands the economy.
The short-run aggregate supply curve specifies how shifts in aggregate demand affect:
real output and the price level in the short run.
Paying interest on internal government debt involves a:
redistribution of income among citizens of the country.
A company switches from a medical plan that covered all medical costs to a medical plan with a high deductible, making employees responsible for the first $1,500 of healthcare costs. Other things the same, a higher deductible is expected to:
reduce both medical claims and hospital admissions.
A country that wants to fix its exchange rate at a higher level than the market exchange rate would most likely:
reduce the money supply.
Most economists agree that the aggregate demand curve is:
relatively steep.
The wage a person requires before accepting a job is referred to as the _____ wage:
reservation
If businesses expect future demand to increase, this will cause a:
rightward shift of the aggregate demand curve.
If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:
rise by 1 percent.
Suppose that at the current price producers of CDs offer 5 million CDs for sale but consumers want to buy 6 million. When the market coordinates the demand and supply for CDs, the price of CDs will:
rise.
The concept of fiscal policy refers to the:
running of a deficit or surplus to affect the level of output in the economy.
The process of packaging a variety of loans together and slicing them up into new financial instruments is called:
securitization.
Suppose the money multiplier in the United States is 2.5. If the Fed wants to reduce the money supply by 1,000 it should:
sell government securities worth 400.
If someone invested in a large quantity of long term bonds and wished to sell them, he/she should
sell immediately if interest rates are expected to rise
If a government finances an increase in its expenditures by selling bonds to the public, then the aggregate demand curve will:
shift out but not as much as it would if crowding out didn't occur.
In 2009 Iran was experiencing inflation of about 20 percent per year. Other things equal, the expectations by the people of Iran of worsening inflation in the future would probably:
shift the AD curve to the right.
The new government of Pakistan transfers money from the rich to the poor. This will likely:
shift the Pakistani AD curve to the right.
From the mid-1980s to 2009, the value of the Japanese yen fell from over 300 yen per dollar to about 100 yen per dollar. Considering the impact of this alone, this would likely:
shift the U.S. AD curve to the right.
In late 2004, oil prices increased sharply while the rate of growth in labor productivity declined. The combination of these two factors should:
shift the short-run aggregate supply curve up (to the left).
If total income in Sweden remains the same but the wage share of income rises, the Swedish AD curve will most likely:
shift to the right.
If total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely:
shift to the right.
In 1968, the government instituted a 26 percent income tax surcharge. In terms of the AS/AD model, this change should have:
shifted the AD curve to the left.
To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:
shifted the AD curve to the left.
In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:
shifted the AD curve to the right.
Singapore has a system of traffic regulation called Electronic Road Pricing, in which traffic congestion is reduced by charging motorists who drive into the city center during certain hours of the day. Charging for use of a road is:
shifting from a third-party-payer-market to one in which individual consumers have to pay for their consumption of road usage, thus seeking to reduce excess demand.
In the late 1990s, those making policy at the U.S. Federal Reserve argued about whether productivity was increasing faster than it had in the past. If productivity was growing faster than anticipated, they would expect the:
short-run aggregate supply curve to be shifting down (to the right).
An increase in production costs is most likely to shift the:
short-run aggregate supply curve up (to the left).
Developing countries employ the inflation tax because it provides a:
short-run solution that helps keep the government afloat, even if only temporarily.
If a country wants maximum flexibility to pursue its domestic macroeconomic goals, it:
should use a flexible exchange rate.
Adam Smith advocated laissez-faire because he believed it was in the interest of:
society as a whole
If the national debt increases in any given year, it follows that the government:
sold bonds in that year to finance a budget deficit.
If I am worried about the price of assets such as bonds falling, I may be more inclined to hold money instead. You hold cash for the:
speculative motive.
Holding money for the transactions motive implies the need to hold money for:
spending.
The provisions in state constitutions requiring them to balance their budgets means that:
state governments often behave procyclically because lower revenues during recessions means lower state spending.
Technological change can result in:
structural unemployment.
Tariffs can be thought of as indirect:
subsidies to domestic producers.
A fall in the U.S. price level will cause foreigners to:
substitute U.S. goods for their own domestically-produced goods.
If cross elasticity of demand is greater than 0, then the goods are
substitutes.
Households are on the:
supply side of factor markets and the demand side of goods markets.
In the late 1990s, the Brazilian currency, the real, depreciated by 40 percent. The AS/AD model predicts that this would cause a trade:
surplus for Brazil and shifted its AD curve right.
If the debt of the federal government decreases by $20 billion in one year the budget:
surplus in that year must be $20 billion.
Immediately after World War II, the United States ran trade:
surpluses and was an international lender.
If the economy falls into a recession, automatic stabilizers will cause:
tax receipts to fall and government spending to rise.
The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that:
the AS/AD model considers total output. There are no goods to substitute.
A key reason that the value of the dollar did not change relative to the Chinese yuan in the early 2000s was:
the Chinese central bank bought dollars to keep the value of the dollar from falling.
Open market operations are related to:
the Fed's buying and selling of government securities.
Debt is measured relative to GDP because:
the ability of a country to pay off its debt depends on its productive capacity.
When you withdraw $1,000 from your bank account:
the bank's financial liabilities and assets fall by $1,000, and you have exchanged one financial asset for another.
Economists who believe in the quantity theory of money argue that:
the causation in the equation of exchange goes from MV to PQ.
Online music stores such as Apple's iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:
the demand curve of CDs to the left.
On January 1, 2001, El Salvador "dollarized" its economy. The U.S. dollar circulated throughout the country along with the Salvadoran colon for the first year. By the end of 2002 the official currency circulating in this economy was the U.S. dollar. El Salvador abandoned its own currency and adopted the currency of the United States because:
the government would no longer be able to finance deficits by printing money, and inflation would be under control.
The financial crisis of 2008 led to massive federal spending in an effort to stimulate the economy. The combination of the new federal spending and the automatic stabilizers led to:
the largest budget deficit since World War II.
As prices fall, people become richer and buy more. This occurs as a result of:
the money wealth effect.
The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused:
the supply curve for gasoline to shift inward.
Complete the following sentence: The "Utility of Poverty" argument predicts that as wage levels increase
the supply of labor will eventually decrease as wages rise.
If the United States imposes tariffs on steel imports:
the supply of the imported steel shifts to the left and raises its market price.
Looking at the globalized AS/AD model, the economy can exceed potential output without generating accelerating goods inflation because:
the world price level puts a cap on the domestic price level.
If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve:
to the right by $60 billion.
In a third-party payer system:
total expenditures generally rise.
In feudalism, serfdom was maintained primarily through:
tradition
In a feudalist society, in comparison with mercantilism:
tradition plays a more important role than the government.
In a dual economy, it is generally the case that the majority of the population works in the:
traditional (barter) economy.
An unanticipated increase in the inflation rate will most likely:
transfer wealth from bondholders to the government.
According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run prices go:
up by 12 percent.
If the government imposes an excise tax on a good equal to $5 per unit and the demand curve for this good is vertical, the supply of this good will shift:
upward and the price will increase by $5.
Adam Smith believed that the division of labor
was a force that would make workers "as stupid and ignorant as it is possible for a human creature to become." would increase productivity.
A public good is a good that:
when consumed by one individual, can still be consumed by others.
The safety net in the proposed guaranteed jobs program differs from the current safety net because unlike the current program, the guaranteed jobs proposal provides a safety net to those people:
who either don't have a job or haven't held a job for very long.
In the mid-1960s, the UNITED STATES was running an expansionary fiscal policy to support the war effort in Vietnam. This likely:
worsened the trade deficit.
