8.1.3Quiz: Practice Multiple Choice Questions

Suppose investment is $30 billion, exports are $20 billion, imports are $50 billion, government spending is $80 billion, and taxes are $60 billion. How much money is the household sector saving?

$20 billion

Suppose in the United States consumption is described by the formula: C = $50 billion + 0.9 Yd, where Yd is disposable income. If taxes are $100 billion and household income is $1,000 billion, what is the amount of household savings in the economy?

$40 billion

Suppose the German government has a debt of 100 billion euros. It takes in 4 billion euros of tax revenue, and spends 3 billion euros on goods and services and 6 billion euros on transfer payments. The following year, Germany's debt will be:

105 billion euros.

According to the law of one price, if a particular bottle of soda costs $2 in the United States and 10 francs in France, and if transportation costs are zero, the exchange rate should be:

5 francs per dollar.

As the stock markets of other countries fall, investors pull their funds out and place them in investments in the U.S. This rush causes domestic interest rates to fall. Which diagram best depicts the changes to the U.S. economy?

B

Examine the currency market for British pounds and US dollars. Initially, the market is at equilibrium. Suppose the Bank of England, Britain's central bank, sells bonds on the British bond market, driving up their interest rates. Which graph shows how these changes alter the pound-dollar currency market?

B

Which of the following is not counted as part of the money supply?

Credit cards

Suppose the government requires businesses to provide dental, mental health, and various other health benefits to their workers. As a result of this policy, the price level greatly increases. Which of these diagrams best shows this scenario?

D

The market for wooden baseball bats starts in equilibrium. Over the course of a year, the price of aluminum baseball bats and the price of wood both rise. Which of the following diagrams correctly illustrates the changes in the market for wooden bats?

E

Suppose consumption expenditures in Japan can be modeled by the equation: C= ¥50 trillion+ 0.8 Yd, where Yd is aggregate disposable income, and ¥ is the symbol for a yen. Initially, aggregate personal income is ¥500 trillion, and taxes are ¥100 trillion. If the Japanese government cuts taxes by ¥50 trillion, what will happen to real GDP?

It rises by ¥200 trillion.

Which of the following could lead to an increase in long-run aggregate supply?

More people finish the school and enter the labor force.

The graph shows the market for money. The initial demand for money is represented by the curve D and the supply of money is the curve S. Then, something happens that causes the demand for money to shift to curve D', which causes the interest rate to fall from r to r'. Which of the following events could have caused the demand for money curve to change in the way that it did?

Peoples' incomes fall, which causes them to purchase fewer goods and services.

Suppose that this graph describes the demand and supply for money in the United States during the Great Depression. What problem would the Federal Reserve have in trying to pull the economy out of its recession?

The Fed can't push down interest rates by a large degree.

Suppose an economy is operating on its short-run Phillips curve, and the unemployment rate is below the natural rate of unemployment. Which of the following statements is correct?

The economy is operating at a point on the short-run Phillips curve to the left of the long-run Phillips curve.

This graph describes the loanable funds market, where demand for and supply of loanable funds are initially D and S, respectively. Which of the following events could cause the interest rate to decrease in the manner shown in the graph?

The government's tax revenues rise, and it no longer needs to borrow funds to finance a deficit.

Suppose the economy's unemployment rate is 5%. A drop in business investment leads to a recession, causing a 4% rise in the unemployment rate. After several months, the unemployment rate falls back to 5%. What would explain the drop in unemployment?

The natural rate hypothesis

An example of a transaction occurring in a factor market would be:

a farmer selling wheat to a bakery.

The components of aggregate demand are:

consumption, investment, government expenditures, and net exports.

The consumer price index is constructed by:

determining the value of a market basket in the current year with respect to its value in the base year.

One of the opportunity costs of owning a home is:

the income that could have been earned by using the mortgage (home loan) down payment to buy Treasury bills.