Clifford Practice Exam #1

Which of the following best defines investment as a component of GDP? (A) Real estate acquisitions made for future resale profit (B) Buying new plants, machinery, tools and inventory (C) Capital gains periodically paid out to stockholders (D) The difference between an individual's total income, wages plus interest, profits and rents, and their disposable income ( E) The purchase of stocks and bonds by private citizens

(B) Buying new plants, machinery, tools and inventory

If the aggregate supply curve is upward sloping and there is an increase in exports to foreign countries, what will be the resulting change in real gross domestic product (RGDP) and price level in the short run? RGDP Price Level (A) Increase Decrease (B) Increase Increase (C) Unchanged Increase (D) Decrease Decrease (E) Decrease Increase

(B) Increase Increase

What will happen to the equilibrium price and equilibrium quantity of a good if there is a simultaneous increase in input costs while the product is gaining popularity among consumers? Equilibrium Price Equilibrium Quantity (A) Increase Increase (B) Increase Indeterminate (C) Increase Decrease (D) Decrease Increase (E) Decrease Decrease

(B) Increase Indeterminate

Assume the government decreases its deficit spending. What is the likely result in the money market? Demand For Money Nominal Interest Rates (A) Decrease Decrease (B) Increase Increase (C) Decrease Indeterminate (D) Increase Decrease (E) Decrease Increase

A

Nations can benefit from free trade mainly because (A) It allows each nation to consume beyond its production possibilities curve. (B) import tariffs can increase government revenues. (C) income inequality will improve in both societies. (D) free trade fosters self-sufficiency for each nation. (E) unemployment will decrease in each country

A

Which of the following is most likely to improve an economy's productivity? (A) Positive net capital stock investment (B) A decrease in cyclical unemployment (C) An increase in government discretionary expenditures (D) An increase in paid maternity leave (E) An increase in the velocity of money

(A) Positive net capital stock investment

Which of the following is true of the short run Phillips curve, but not true for the long run Phillips curve? (A) There is a tradeoff between the unemployment rate and the inflation rate (B) It is vertical at the natural rate of unemployment (C) It is upward sloping (D) There is not a tradeoff between the unemployment rate and the inflation rate (E) Shifts of the curve are the result of a change in aggregate demand

(A) There is a tradeoff between the unemployment rate and the inflation rate

A decrease in which of the following might cause a decrease in real per capita income? (A) Inflation (B) Output per unit of input (C) Personal and corporate income tax rates (D) The retirement age (E) The real interest rate

(B) Output per unit of input

Which of the following groups would benefit in the short run from an unanticipated rise in the inflation rate? (A) Retirees on a fixed income (B) Young people repaying fixed-interest-rate student loans (C) Union workers whose contracts do not include a cost-of-living-adjustment (COLA) (D) Homeowners with adjustable mortgage rate loans from banks (E) Financial institutions that have more fixed interest outstanding loans than adjustable rate loans on their books

(B) Young people repaying fixed-interest-rate student loans

Which of the following is a reason why one nation's economic growth rate might be higher than another nation? (A) A lower labor force participation rate (B) A lower age of retirement (C) Larger per capita government subsidies for education and worker training programs (D) Increased corporate tax rates (E) Increased consumer spending

(C) Larger per capita government subsidies for education and worker training programs

Stagflation is the result of which of the following shifts in the AD/AS model? (A) The aggregate demand curve shifting to the left (B) The aggregate demand curve shifting to the right (C) The aggregate supply curve shifting to the left (D) The aggregate supply curve shifting to the right (E) The long run aggregate supply curve shifting to the left

(C) The aggregate supply curve shifting to the left

What must be true if a nation's economy is operating inside of its production possibilities curve? (A) The nation is utilizing all resources as efficiently as possible (B) The nation currently lacks the resources and technology to operate at a point on the production possibilities curve (C) The nation is using resources and technology inefficiently (D) The nation must increase investment spending on capital stock to produce on the curve (E) The nation's nominal gross domestic product is growing at a faster rate than real gross domestic product

(C) The nation is using resources and technology inefficiently

The natural rate of unemployment is (A) The number of unemployed divided by the labor force (B) The rate of unemployment when there is no frictional unemployment (C) The rate of unemployment when the economy is in long run equilibrium (D) The labor force divided by the working age non-institutionalized population (E) The rate of unemployment when the price level meets the Federal Reserve target for inflation

(C) The rate of unemployment when the economy is in long run equilibrium

If foreign investors purchase U.S. government treasury bills, those purchases will be included in their nation's (A) balance of trade (B) current account (C) financial account (D) gini coefficient (E) net cash transfers

(C) financial account

Which of the following would cause an inward shift of the production possibilities curve? (A) A decrease in real interest rates (B) An increase in personal income taxes (C) A decrease in the price level (D) A decrease in the size of the labor force (E) An increase in unemployment related to a recessionary gap

(D) A decrease in the size of the labor force

What will be the resulting change in Japan's aggregate supply and aggregate demand if the value of the Japanese yen increases in the foreign exchange market? Aggregate Demand Aggregate Supply (A) Increase Increase (B) Increase No change (C) No change Increase (D) Decrease No change (E) Decrease Increase

(D) Decrease No change

If a country is experiencing a significant recessionary gap, which of the following combinations of fiscal and monetary policies would be most likely to move the nation toward long-run equilibrium? Fiscal Policy Monetary Policy (A) Increase taxes Increase the federal funds rate (B) Decrease taxes Sell government securities in the open market (C) Decrease No change in Government the money supply spending (D) Increase Buy government Government securities in the spending open market (E) Decrease Sell government Government securities in the spending open market

(D) Increase Buy government Government securities in the spending open market

A rightward shift in the aggregate demand curve could most likely be caused by which of the following? (A) a decrease in consumer confidence (B) a decrease in investment spending (C) an increase in the price level (D) the purchase of government securities by the central bank (E) an increase in personal income taxes

(D) the purchase of government securities by the central bank

The short run aggregate supply curve would shift to the left in response to which of the following? (A) An increase in net capital stock (B) A decrease in the corporate income tax rate (C) An increase in sovereign debt (D) A decrease in the price level (E) An increase in the cost of resources

(E) An increase in the cost of resources

If the reserve requirement increases from 5 percent to 10 percent, and assuming the general public holds a portion of its money in cash, what will happen to the money multiplier and the money supply? Money Multiplier Money Supply (A) Increase Increase by double (B) Increase Increase by less than double (C) Decrease Decrease by more than half (D) Decrease Decrease by half (E) Decrease Decrease by less than half

(E) Decrease Decrease by less than half

Which of the following groups would most likely be hurt by the depreciation of the Canadian dollar in the international market? (A) Canadian banks holding large amounts of foreign currencies (B) Canadian lumber producers who sell to firms in other nations (C) Europeans planning on traveling in Canada for their vacations (D) Retired Americans living in Canada on their US government pensions (E) Swiss ski manufacturers that market their products in Canada

(E) Swiss ski manufacturers that market their products in Canada

If nominal wages and prices are not flexible, which of the following must be true when the economy has a severe recessionary gap? (A) The aggregate demand curve is vertical (B) The aggregate demand curve is horizontal (C) The short run aggregate supply curve is vertical (D) The short run aggregate supply curve is upward sloping (E) The short run aggregate supply curve is horizontal

(E) The short run aggregate supply curve is horizontal

An increase in the expected rate of inflation is most likely to cause which of the following changes in the Phillips curve? (A) a move downward to a new point along the short run Phillips curve (B) a move upward to a new point along the short run Phillips curve (C) a shift of the long run Phillips curve to the right (D) a shift of the entire short run Phillips curve to the left (E) a shift of the entire short run Phillips curve to the right

(E) a shift of the entire short run Phillips curve to the right

Which of the following is NOT a criticism of gross domestic product (GDP) as a measure of a nation's well-being? (A) GDP measures only the value of final goods and services and not intermediate goods and services. (B) GDP does not account for the negative impacts of economic growth, such as pollution. (C) GDP does not account for non-market activities accomplished by individual economic actors for themselves. (D) GDP does not account for inequitable distribution of income among the populace, resulting in wide discrepancies in living standards. (E) Economic activities for which people are paid "under the table", or barter transactions, are not accounted for by GDP statistics.

A

The table below represents a simplified bank balance sheet, or T-Account, for a commercial bank. Use the information in the table to answer the following question. Assets Liabilities Required Demand Reserves: $10,000 Deposits: $100,000 Securities: $30,000 Loans: $50,000 Which of the following represents the required reserve ratio for this bank and the maximum amount of additional lending this bank can undertake? Required Additional Reserve Ratio Loans (A) 5% $5,000 (B) 10% $10,000 (C) 10% $20,000 (D) 30% $70,000 (E) 50% $50,000

B

Who demands the factors of production in the circular flow diagram? (A) Consumers (B) Firms (C) The foreign sector (D) Financial institutions (E) Households

B

Which of the following assets would be characterized as having the most liquidity? (A) an antique etruscan vase (B) money market mutual funds (C) stocks (D) savings bonds (E) paper currency

C

The central problem in economics is (A) promoting economic growth. (B) ensuring stable prices; limiting inflation (C) promoting private ownership and protection of private property rights. (D) scarcity; the use of limited resources. (E) limiting unemployment.

D) scarcity; the use of limited resources

The spending multiplier is the result of (A) tax revenues increase as consumer and business incomes increase. (B) foreign purchasers increasing expenditures as the currency appreciates. (C) government spending crowding out consumption and investment spending. (D) domestic investment expenditures rising as interest rates rise. (E) consumer expenditures rising as incomes rise.

E

Which of the following assets would be characterized as having the most liquidity? (A) an antique etruscan vase (B) money market mutual funds (C) stocks (D) savings bonds (E) paper currency

E