Combo with "Economics" and 1 other

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent.

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the:

Asset demand for money

The amount that a commercial bank can lend is determined by its:

excess reserves.

The size of MPC is assumed to be:

greater than zero, but less than one

Other things being equal, an expansion of commercial bank lending:

Increases the money supply

Commercial banks and thrift institutions:

have become increasingly similar in recent years.

Patents and copyrights foster the flow of:

Inventions and ideas

One of the potential consequences of the public debt is that it may:

Lead to additional future taxes that reduce economic incentives

Council of Economic Advisers.

The group of three economists appointed by the President to provide fiscal policy recommendations is the:

the recession of 2001.

The immediate primary cause of the swing from Federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was:

the U.S. public (individuals, businesses, financial institutions, etc.) and state and local governments.

The largest proportion of the U.S. public debt is held by:

may be very small or conceivably zero when the economy is in a severe depression.

The real burden of an increase in the public debt:

Cost-push inflation may be caused by:

a negative supply shock.

An appropriate fiscal policy for severe demand-pull inflation is:

a tax rate increase.

If you are estimating your total expenses for school next semester, you are using money primarily as:

a unit of account.

The equilibrium level in GDP in a private closed economy is where:

aggregate expenditures equal GDP

In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits.

6. In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A. business taxes and government regulation. B. the prices of imported resources. C. the prices of domestic resources. D. productivity.

D. productivity.

Which would be considered to be one of the factors that shift the aggregate supply curve in the short run? A change in:

Government regulation

A

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. B) rightward by $20 billion at each price level. C) rightward by $40 billion at each price level. D) leftward by $20 billion at each price level.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

consume is three fifths.

Dissaving occurs where:

consumption exceeds income

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:

panels (A) and (B).

TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily:

pension funds.

The average propensity to consume indicates the:

percentage of total income that will be consumed

A checking account entry is money because it:

performs the functions of money.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity.

An economist who favors smaller government would recommend:

tax cuts during recession and reductions in government spending during inflation.

Other things equal, an increase in productivity will shift the aggregate supply curve rightward.

true

The aggregate supply curve (short-run) becomes steeper as the economy moves rightward and upward along it.

true

The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

true

Unemployment and inflation can coexist.

true

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

The consumption schedule is drawn on the assumption that as income increases consumption will:

increase absolutely, but decline as a percentage of income

Other things equal, a reduction in personal and business taxes can be expected to:

increase both aggregate demand and aggregate supply.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion

If 100 percent of any change in income is spent, multiplier will be:

infinitely large

The purchasing power of money and the price level vary:

inversely

The value of money varies:

inversely with the price level.

The Federal Reserve System:

is basically an independent agency.

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

If the price index rises from 200 to 250, the purchasing power value of the dollar: may either rise or fall.

will fall by 20 percent.

Stabilizing a nation's price level and the purchasing power of its money can be achieved:

with both fiscal and monetary policy.

When there is inflation in the economy, it implies that the:

Price index is rising and the purchasing power of money is falling

A

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.

Which of the following would not shift the aggregate demand curve? Changes in:

Productivity rates

Growth-promoting institutional structures include the following, except:

Protection of domestic firms from foreign rivals

What is the primary function of the Term Asset-Backed Securities Loan Facility?

Provide funding support for collateralized securities such as student, auto, and credit card loans.

A lower real interest rate typically induces consumers to:

Purchase more goods that are bought using credit

Which of the following is the so-called efficiency factor of economic growth?

Reaching full production potential

Which of the following institutions does not provide checkable-deposit services to the general public?

U.S. Treasury

GDP excludes most nonmarket transactions. Therefore, GDP tends to:

Underestimate the amount of production in the economy

The interest rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

The interest-rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

Labor productivity is measured by:

real output per worker hour.

One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the:

Time the need for the fiscal action is recognized and the time that the action is taken

the bulk of the public debt is owned by U.S. citizens and institutions.

To say that "the U.S. public debt is mostly held internally" is to say that:

When the interest rate falls, the:

Total amount of money demanded increases

The following are incomes earned but not received by the nation's households, except:

Transfer payments

TARP, created in 2008, stands for:

Troubled Asset Relief Program

Which of the following programs was not designed and implemented by the Federal Reserve?

Troubled Asset Relief Program

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent.

A commercial bank can expand its excess reserves by:

demanding and receiving payment on an overdue loan.

The reserves of a commercial bank consist of:

deposits at the Federal Reserve Bank and vault cash.

To say that the Federal Reserve Banks are quasi-public banks means that:

they are privately owned but managed in the public interest.

To say that the Federal Reserve Banks are quasi-public banks means that:

they are privately owned, but managed in the public interest.

Checkable deposits are classified as money because:

they can be readily used in purchasing goods and paying debts.

Charter One, Pentagon Federal Credit Union, and Boeing Employees Credit Union are all primarily:

thrifts

Per-unit production cost is:

total input cost divided by units of output.

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

true

An increase in business excise taxes will shift the aggregate supply curve leftward.

true

In locating a particular aggregate demand curve it is assumed that the money supply is fixed.

true

In order to study the macroeconomy we must combine the prices and quantities generated in single-product markets into broad aggregates.

true

Official unemployment statistics:

understate unemployment because discouraged workers are not counted as unemployed.

To say money is socially defined means that:

whatever performs the functions of money extremely well is considered to be money.

A bank's required reserves can be calculated by:

Multiplying its checkable-deposit liabilities by the reserve ratio

If consumers become pessimistic, the economy is likely to experience a:

Negative demand shock

A commercial bank has checkable-deposit liabilities of $50,000 and a required-reserve ratio of 20 percent. What is the amount of required reserves?

$10,000

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by:

$10,000, $1000, and $9000 respectively

Answer the question on the basis of the following table for a commercial bank or thrift: Picture Refer to the above table. When the legal reserve ratio is 20 percent, the money creating potential of the entire banking system is:

$10,000.

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule is:

0.25

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:

10 percent.

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

10,800

A

10. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A) increasing government spending by $4 billion. B) increasing government spending by $40 billion. C) decreasing taxes by $4 billion. D) increasing taxes by $4 billion.

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

100,000

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent.

The Federal Reserve System was created in:

1913.

Refer to the given list. The M2 definition of money comprises:

2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about:

30 percent.

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.

3; 2; 1

If the MPC is 0.75, the multiplier will be:

4

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

6 percent.

D

68. Refer to the above diagram. Which tax system has the most built-in stability? A) T4 B) T3 C) T2 D) T1

A

69. Refer to the above diagram. Which tax system has the least built-in stability? A) T4 B) T3 C )T2 D) T1

(Advanced analysis) Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1. An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by: A) $30 billion and increase real GDP by $15 billion. B) $30 billion and increase real GDP by $30 billion. C) $10 billion and increase real GDP by $30 billion. D) $10 billion and increase real GDP by $10 billion.

A

(Consider This) The ratchet effect is the tendency of: A) the price level to increase but not to decrease. B) nominal GDP to increase more rapidly than real GDP. C) real interest rates to fall more rapidly than nominal interest rates. D) consumption to rise year after year regardless of what happens to disposable income

A

(Last Word) In recent years: A) unemployment rates in Europe have been higher than in the United States. B) the natural rate of unemployment in Europe has fallen sharply. C) Europe has had strong aggregate demand and low unemployment rates. D) European nations have greatly reduced their unemployment rates by reducing minimum wages, welfare benefits, and government restrictions against firing workers.

A

19. 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

A decline in investment will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

A

A decrease in aggregate demand will cause a greater decline in real output the: A) less flexible is the economy's price level. B) more flexible is the economy's price level. C) steeper is the economy's AS curve. D) larger is the economy's marginal propensity to save.

A

An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to: A) a rightward shift of the aggregate demand curve in the AD-AS model. B) a leftward shift of the aggregate demand curve in the AD-AS model. C) a movement downward along a fixed aggregate demand curve in the AD-AS model. D) a decrease in aggregate supply in the AD-AS model.

A

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

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

Graphically, demand-pull inflation is shown as a: A) rightward shift of the AD curve along an upsloping AS curve. B) leftward shift of the AS curve along a downsloping AD curve. C) leftward shift of AS curve along an upsloping AD curve. D) rightward shift of the AD curve along a downsloping AS curve.

A

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect: A) aggregate demand to decrease and aggregate supply to increase. B) both aggregate demand and aggregate supply to decrease. C) both aggregate demand and aggregate supply to increase. D) aggregate demand to increase and aggregate supply to decrease.

A

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

A

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: A) aggregate demand curve would shift to the right. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

A

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

Refer to the above data. If the price level is 150 and producers supply $300 of real output: A) a shortage of real output of $200 will occur. B) a shortage of real output of $100 will occur. C) a surplus of real output of $300 will occur. D) neither a shortage nor a surplus of real output will occur.

A

Refer to the above diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be: A) F and C, respectively. C) F and A, respectively. B) G and B, respectively. D) E and B, respectively.

A

Refer to the above diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n): A) increase in government regulation. C) increase in productivity. B) increase in aggregate demand. D) decline in nominal wages.

A

Refer to the above diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant: A) the aggregate supply curve would have to shift rightward. B) the aggregate supply curve would have to shift leftward. C) real domestic output would have to remain constant. D) the aggregate supply curve would have to be vertical.

A

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

A

Refer to the above information. As a result of the change indicated in the previous question, the aggregate: A) supply curve would shift to the left. C) demand curve would shift to the left. B) supply curve would shift to the right. D) demand curve would shift to the right.

A

Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate: A) supply curve to shift to the left. C) demand curve to shift to the left. B) supply curve to shift to the right. D) demand curve to shift to the right

A

Refer to the above table. If the amounts of GDP supplied at the price levels shown (in descending order) are $45, $43, $40, $37, and $31, the equilibrium level of real GDP will be: A) $37 billion. B) $35 billion. C) $26 billion. D) $43 billion.

A

Refer to the above table. Which of the following schedules constitutes aggregate demand in this country? (a) (b) (c) (d) P GDP P GDP P GDP P GDP 128 $19 128 $23 128 $20 128 $34 125 25 125 27 125 22 125 37 122 31 122 31 122 24 122 40 119 37 119 35 119 26 119 43 116 43 116 39 116 28 116 46

A

The economy's long-run AS curve assumes that wages and other resource prices: A) eventually rise and fall to match upward or downward changes in the price level. B) are flexible upward but inflexible downward. C) rise and fall more rapidly than the price level. D) are relatively inflexible both upward and downward.

A

The level of productivity in the above economy is: A) 2. B) .5. C) 4. D) 200.

A

The real-balances, interest-rate, and foreign purchases effects all help explain: A) why the aggregate demand curve is downsloping. B) why the aggregate supply curve is upsloping. C) shifts in the aggregate demand curve. D) shifts in the aggregate supply curve.

A

We would expect a decline in personal and corporate income taxes to: A) shift the aggregate demand curve rightward. C) decrease real output. B) decrease consumption and investment spending. D) shift the aggregate supply curve leftward.

A

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may: A) not be possible due to the minimum wage law. C) reduce the demands for their products. B) increase the cost of raising money capital. D) may set off a price war.

A

When aggregate demand declines, the price level may remain constant, at lease for a time, because: A) firms individually fear that their price cut may set off a price war. B) menu costs rise. C) price cuts tend to increase efficiency wages. D) product markets are highly competitive.

A

smaller is the economy's MPS.

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

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

A

Which of the above diagrams best portrays the effects of declines in the prices of imported resources? A) A B) B C) C D) D

A

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

Refer to the diagram, in which Qf is the full-employment output. The shift in the aggregate demand curve from AD3 to AD2 (increase) could result from which of the following fiscal policy actions?

A tax reduction accompanied by an even larger reduction in government spending.

larger is the economy's MPC.

A tax reduction of a specific amount will be more expansionary, the:

Which of the following institutional structures is most likely to promote growth?

A well-enforced system of patents and copyrights.

15. The commercial banking system has excess reserves of: A. $0 billion. B. $30 billion. C. $60 billion. D. $70 billion.

A. $0 billion.

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

A. $480.

4. In the above diagram for a private closed economy, at the equilibrium level of GDP, investment and saving are both: A. $50. B. $100. C. $20. D. $40.

A. $50.

11. Suppose the balance on the financial account is -$300 billion and the balance on the capital account is +$5 billion. The size of the current account is: A. +$295 billion. B. -$295 billion. C. +$305 billion. D. +$5 billion.

A. +$295 billion.

As it relates to the Federal Reserve activities, the acronym FOMC describes the: A. Federal Open Market Committee. B. Federal Options Market Committee. C. Federal Organization for Monetary Control. D. Federal Organization for Money Creation.

A. Federal Open Market Committee

Which of the following does not explain what back the money supply in the United States? A. It is back by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the Federal government. D. It is relatively scarce.

A. It is back by gold.

Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008? A. Merrill Lynch B. Lehman Brothers C. Goldman Sachs D. AIG

A. Merrill Lynch

Which of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks

17. Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

Which of the following programs was not designed and implemented by the Federal Reserve? A. Troubled Asset Relief Program B. Term Securities Lending Facility C. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility D. Primary Dealer Credit Facility

A. Troubled Asset Relief Progam

9. The production possibilities curves above suggest that: A. West Mudville should specialize in, and export, baseball bats. B. West Mudville should specialize in, and export, both baseballs and baseball bats. C. East Mudville should specialize in, and export, baseball bats. D. workers will try to immigrate from West Mudville to East Mudville.

A. West Mudville should specialize in, and export, baseball bats.

2. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. a medium of exchange.

46. 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. 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.

When economists say that money serves as a store of value, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

A. a way to keep wealth in a readily spendable form for future use.

29 percent

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?

The seven members of the Board of Governors of the Federal Reserve System are: A. appointed by the President with the confirmation of the Senate. B. elected by Congress from a slate of nominees provided by the President. C. appointed by the Senate Finance Committee. D. appointed by the presidents of the twelve Federal Reserve Banks.

A. appointed by the President with the confirmation of the Senate

19. Refer to the above diagram. Other things equal, a leftward shift of the supply curve would: A. appreciate the euro. B. cause a shortage of euros. C. increase the equilibrium quantity of euros. D. appreciate the dollar.

A. appreciate the euro.

21. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,100. B. liabilities are $1,100. C. net worth is $300. D. profit is $1,000.

A. assets are $1,100.

29. Refer to the above diagram for the Federal funds market. If the Fed wants to increase reserves from $200 billion to $300 billion it should: A. buy bonds from banks and the public. B. sell bonds to banks and the public. C. buy bonds from banks and sell them to the public. D. buy bonds from the public and sell them to banks.

A. buy bonds from banks and the public.

10. 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. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

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. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

(Last Word) Electronic money is: A. closely associated with smart cards. B. issued in real terms so that it is immune from the effects of inflation. C. the money dispensed by automatic teller machines (ATMs). D. also called share-draft money.

A. closely associated with smart cards.

4. 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. coins, paper currency, and checkable deposits.

In the United States, the money supply (M1) is compromised 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. coins, paper currency, and checkable deposits.

New York Life, Prudential, and Hartford, are all primarily: A. commercial banks. B. mutual fund companies. C. insurance companies. D. securities firms.

A. commercial banks

10. Refer to the above diagram. If the full-employment level of GDP is A, 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.

A. decrease spending and increase taxes.

10. Refer to the above data. Zabella's balance on capital and financial account shows a: A. deficit of $5 billion. B. surplus of $10 billion. C. deficit of $10 billion. D. surplus of $5 billion.

A. deficit of $5 billion.

15. Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy. C. neutral fiscal policy. D. low-interest rate policy.

A. expansionary fiscal policy.

1. In recent years the United States has: A. exported more services abroad than it has imported. B. had a small goods trade surplus with Japan. C. had a large goods trade surplus with the rest of the world. D. maintained an overall trade surplus (goods and services combined) with the rest of the world.

A. exported more services abroad than it has imported.

24. When aggregate demand declines, the price level may remain constant, at least for a time, because: A. firms individually may fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually may fear that their price cut may set off a price war.

32. Other things equal, economists would prefer: A. free trade to tariffs and tariffs to import quotas. B. free trade to import quotas and import quotas to tariffs. C. import quotas to tariffs and tariffs to voluntary export restrictions. D. import quotas to free trade and free trade to tariffs.

A. free trade to tariffs and tariffs to import quotas.

20. "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. high-interest rate loans to home buyers with above average credit risk.

Checkable deposits are: A. included in M1. B. not included in either Ml C. considered to be a near money. D. also called time deposits.

A. included in M1.

20. In the above diagram and other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n): A. increase in government regulation. B. increase in aggregate demand. C. increase in productivity. D. decline in nominal wages.

A. increase in government regulation.

38. 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 the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should: A. increase the money supply from $80 to $100. B. increase the money supply from $80 to $120. C. maintain the money supply at $80. D. decrease the money supply from $80 to $60.

A. increase the money supply from $80 to $100.

The value if 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. inversely with the price of index

23. Tariffs: A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). B. are also called import quotas. C. are excise taxes on goods exported abroad. D. are per unit subsidies designed to promote exports.

A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. medium of exchange.

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of: A. moral hazard. B. adverse selection. C. a prisoner's dilemma. D. shadow banking.

A. moral hazard.

16. In the real world, specialization is rarely complete because: A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing. B. production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin. C. one nation's imports are necessarily another nation's exports. D. international law prohibits monopolies.

A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.

26. The most likely way the public debt burdens future generations, if at all, is by: A. reducing the current level of investment. B. causing future unemployment. C. causing deflation. D. reducing real interest rates.

A. reducing the current level of investment.

14. Graphically, demand-pull inflation is shown as a: A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

A. rightward shift of the AD curve along an upsloping AS curve.

19. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will: A. rise by $6,000 and the monetary multiplier will increase from 4 to 10. B. rise by $60,000 and the monetary multiplier will increase from 4 to 10. C. fall by $6,000 and the monetary multiplier will decline from 30 to 10. D. fall by $2,000 and the monetary multiplier will decline from 10 to 4.

A. rise by $6,000 and the monetary multiplier will increase from 4 to 10.

35. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. B. buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. C. sell government securities, lower reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility. D. sell government securities, raise reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility.

A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility.

18. If the world price for this product is $.50, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

A. shortage of 160 units, which it will meet with 160 units of imports.

14. Refer to the above data. Beta: A. should specialize in catching fish and trade with Alpha for chips. B. should specialize in producing chips and trade with Alpha for fish. C. will not realize gains from specialization and trade. D. will export both fish and chips to Alpha.

A. should specialize in catching fish and trade with Alpha for chips.

25. (Last Word) In recent years: A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades. B. large increases in the price of oil have reduced U.S. aggregate supply and caused significant cost-push inflation. C. large decreases in the price of oil have increased U.S. aggregate supply and caused deflation. D. the United States has become a net exporter of oil.

A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades.

Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

13. Which of the following will increase commercial bank reserves? A. the purchase of government bonds in the open market by the Federal Reserve Banks B. a decrease in the reserve ratio C. an increase in the discount rate D. the sale of government bonds in the open market by the Federal Reserve Banks

A. the purchase of government bonds in the open market by the Federal Reserve Banks

14. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to: A. the reciprocal of the required reserve ratio. B. 1 minus the required reserve ratio. C. the reciprocal of the income velocity of money. D. 1/MPS.

A. the reciprocal of the required reserve ratio.

44. From September 2007 to April 2008 the Fed lowered the Federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to: A. threats to the financial system from the mortgage default crisis. B. forecasts of higher inflation rates. C. Chinese refusal to allow their exchange rate to reflect market conditions. D. pressure from the President to offset contractionary effects of a tax increase.

A. threats to the financial system from the mortgage default crisis.

A $70 price tag on a sweater in a department store window is an example of money functioning as a: A. unit of account. B. standard of deferred payments. C. store of value. D. medium of exchange.

A. unit of account.

27. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be: A. v and vz. B. w and wy. C. w and wz. D. vx and xz.

A. v and vz.

Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

All of these are possible outcomes.

Which would most likely increase aggregate supply?

An increase in productivity

A

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy? A) an increase in Federal income tax rates B) an increase in the size of income tax exemptions for each dependent C) passage of legislation providing for the construction of 8,000 new school buildings D) an increase in soil conservation subsidies to farmers

an excess of government expenditures over tax receipts.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

C

Assume the government purposely incurs a budget deficit that is financed by borrowing. As a result, interest rates rise and the amount of private investment spending declines. This illustrates: A) the equation-of-exchange effect. B) the paradox of thrift. C) the crowding-out effect. D) the wealth effect.

. If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: A) the output effect. C) the real-balances effect. B) the foreign purchases effect. D) the shift-of-spending effect

B

24. Which of the following represents the most expansionary fiscal policy? A. a $10 billion tax cut B. a $10 billion increase in government spending C. a $10 billion tax increase D. a $10 billion decrease in government spending

B

9. In the above diagram, a shift from AS1 to AS3 might be caused by a(n): A. increase in productivity. B. increase in the prices of imported resources. C. decrease in the prices of domestic resources. D. decrease in business taxes.

B

A rightward shift in the aggregate supply curve is best explained by an increase in: A) business taxes. B) productivity. C) nominal wages. D) the price of imported resources.

B

A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output.

B

An increase in input productivity will: A) shift the aggregate supply curve leftward. B) reduce the equilibrium price level, assuming downward flexible prices. C) reduce the equilibrium real output. D) reduce aggregate demand.

B

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that: A) the money supply has declined. B) the price level is inflexible downward and a recession has occurred. C) cost-push inflation has occurred. D) productivity has declined.

B

If aggregate demand increases and aggregate supply decreases, the price level: A) will decrease, but real output may either increase or decrease. B) will increase, but real output may either increase or decrease. C) and real output will both increase. D) and real output will both decrease.

B

In the above diagram, a shift from AS1 to AS3 might be caused by a(n): A) increase in productivity. C) decrease in the prices of domestic resources. B) increase in the prices of imported resources. D) decrease in business taxes.

B

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

In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves are lines: A) 4 and 2. B) 4 and 1. C) 2 and 4. D) 2 and 3.

B

In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the above diagram produce: A) a higher price level. B) an expansion of real output and a stable price level. C) an expansion of real output and a higher price level. D) a decline in real output and a stable price level.

B

In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by: A) a reduction in the price level. B) the increased availability of entrepreneurial talent. C) an increase in business taxes. D) the real-balances, interest-rate, and foreign purchases effects.

B

Other things equal, a decrease in the real interest rate will: A) expand investment and shift the AD curve to the left. B) expand investment and shift the AD curve to the right. C) reduce investment and shift the AD curve to the left. D) reduce investment and shift the AD curve to the right.

B

Other things equal, a reduction in personal and business taxes can be expected to: A) increase aggregate demand and decrease aggregate supply. B) increase both aggregate demand and aggregate supply. C) decrease both aggregate demand and aggregate supply. D) decrease aggregate demand and increase aggregate supply.

B

Other things equal, if the U.S. dollar were to depreciate, the: A) aggregate demand curve would remain fixed in place. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

B

Per unit production cost is: A) real output divided by inputs. C) units of output divided by total input cost. B) total input cost divided by units of output. D) a determinant of aggregate demand.

B

Refer to the above data. The change in aggregate demand indicated in the previous question might have been caused by: A) an increase in net exports. C) an increase in consumer wealth. B) a worsening of business expectations. D) a decrease in the personal income tax.

B

Refer to the above data. The equilibrium price level will be: A) 150. B) 200. C) 250. D) 300.

B

Refer to the above diagram. At the equilibrium price and quantity: A) aggregate demand exceeds aggregate supply. B) the amount of real output demanded and supplied are equal. C) aggregate demand equals aggregate supply. D) aggregate supply exceeds aggregate demand.

B

Refer to the above diagram. If the aggregate supply curve shifted from AS0 to AS1, 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

Refer to the above diagram. Which of the following would shift the aggregate demand curve from AD2 to AD1? A) a decline in personal income tax rates B) an increase in the international value of the dollar C) an increase in government spending D) an upward revision of expected rates of return on investment projects

B

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the: A) shift of the AD curve in panel (A). C) shift of the AS curve in panel (B). B) move from point a to point b in panel (B). D) move from point a to point c in panel (C).

B

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

B

Refer to the above diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting 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

Refer to the above information. The per unit cost of production in this economy is: A) $.05. B) $.10. C) $.50. D) $1.00.

B

Refer to the above table. If the amounts of GDP supplied at the price levels shown (in descending order) are $27, $25, $22, $18, and $13, the equilibrium price level will be: A) 128. B) 125. C) 122. D) 119.

B

Refer to the above table. If this nation's equilibrium price level is 125, its net exports will be: A) minus $4 billion. B) minus $2 billion. C) zero. D) $2 billion.

B

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate: A) demand curve will shift leftward. C) supply curve will shift leftward. B) supply curve will shift rightward. D) expenditures curve will shift downward.

B

Suppose that the price of each input increased from $5 to $8. The per unit cost of production in the above economy would: A) rise by $1.50 and the aggregate supply curve would shift to the right. B) rise by 60 percent and the aggregate supply curve would shift to the left. C) rise by 60 percent and the aggregate demand curve would shift to the left. D) fall by $1.50 and the aggregate demand curve would shift to the right.

B

The aggregate supply curve (short-run): A) graphs as a horizontal line. B) is steeper above the full-employment output than below it. C) slopes downward and to the right. D) presumes that changes in wages and other resource prices match changes in the price level.

B

The determinants of aggregate demand: A) explain why the aggregate demand curve is downsloping. B) explain shifts in the aggregate demand curve. C) demonstrate why real output and the price level are inversely related. D) include input prices and resource productivity.

B

The economy's long-run aggregate supply curve: A) slopes upward and to the right. C) is horizontal. B) is vertical. D) slopes downward and to the right.

B

The fear of unwanted price wars may explain why many firms are reluctant to: A) reduce wages when a decline in aggregate demand occurs. B) reduce prices when a decline in aggregate demand occurs. C) expand production capacity when an increase in aggregate demand occurs. D) provide wage increases when labor productivity rises.

B

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: A) increase the amount of U.S. real output purchased. B) increase U.S. imports and decrease U.S. exports. C) increase both U.S. imports and U.S. exports. D) decrease both U.S. imports and U.S. exports.

B

The size of the multiplier associated with an initial increase in spending will be: A) the same whether or not inflation occurs. C) zero if any increase in the price level occurs. B) diminished if inflation occurs. D) enhanced if inflation occurs.

B

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

When deriving the aggregate demand (AD) curve from the aggregate expenditure model, an increase in U.S. product prices would cause an increase in: A) the value of household wealth and lower consumption expendtitures. B) interest rates and lower investment expenditures. C) exports and imports. D) U.S. resource prices and an increase in aggregate supply.

B

Which of the above diagrams best portrays the effects of a decrease in the availability of key natural resources? A) A B) B C) C D) D

B

Which of the above diagrams best portrays the effects of a dramatic increase in energy prices? A) A B) B C) C D) D

B

6. In the above diagram for a private closed economy, equilibrium GDP is: A. $60 billion. B. $180 billion. C. between $60 and $180 billion. D. $60 billion at all levels of GDP.

B. $180 billion.

6. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be: A. $25,000 and $122,000 respectively. B. $22,000 and $110,000 respectively. C. $32,000 and $115,000 respectively. D. $22,000 and $105,000 respectively.

B. $22,000 and $110,000 respectively.

9. Refer to the above data. Zabella's balance on goods and services shows a: A. $5 billion deficit. B. $5 billion surplus. C. $10 billion surplus. D. $15 billion deficit.

B. $5 billion surplus.

18. The equilibrium level of GDP for this economy is: A. $600. B. $530. C. $415. D. $400.

B. $530.

23. In the above table, equilibrium GDP is: A. $40. B. $70. C. $100. D. $130.

B. $70.

36. Which of the following best describes the cause-effect chain of a restrictive monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

20. 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.

B. A reduction in interest rates that encourages consumers to purchase more durable goods.

7. Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that: A. the terms of trade will be 3X equals 1Y. B. Alpha should specialize in Y and Beta in X. C. Alpha should specialize in X and Beta in Y. D. there is no basis for mutually beneficial specialization and trade.

B. Alpha should specialize in Y and Beta in X.

The basic policy-making body in the U.S. banking system us 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. Board of Governors of the Federal Reserve.

1. International transactions fall into what two broad categories? A. Manufacturing trade and services trade. B. International trade and international asset transactions. C. Currency transactions and services trade. D. Newly created assets and preexisting assets.

B. International trade and international asset transactions.

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008? A. Merrill Lynch B. Lehman Brothers C. Goldman Sachs D. AIG

B. Lehman Brothers

Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF? A. Supervising banks B. Lender of last resort C. Fiscal agent for the Federal government D. Issuing currency

B. Lender of last resort

Assuming o other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. M2 money supply will increase.

B. M1 money supply will not change.

"Near-monies" are included in: A. both M1 and M2. B. M2 only. C. M1 only. D. neither M1 nor M2.

B. M2 only.

Money market deposits accounts are included in: A. M1 only. B. M2 only. C. neither M1 nor M2. D. both M1 and M2.

B. M2 only.

7. Which of the following would contribute to a United States balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City B. United States tourists travel in large numbers to Europe C. a wealthy Mexican citizen builds a mansion in Beverly Hills D. Zaire pays interest on its debt to the United States

B. United States tourists travel in large numbers to Europe

39. The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A. International Monetary Fund (IMF). B. World Trade Organization (WTO). C. Common Market Organization (CMO). D. International Trade Commission (ITC).

B. World Trade Organization (WTO).

43. From 2004 to 2006 the Fed raised the Federal funds rate gradually in a series of steps. The Fed's purpose was to raise the prime interest rate so that: A. high inflation rates would fall. B. aggregate demand would continue to grow consistently and with low inflation. C. aggregate supply would grow, increasing output and lowering the price level. D. banks would reduce lending that was building up unmanageable consumer debt.

B. aggregate demand would continue to grow consistently and with low inflation.

5. For a private closed economy, an unintended decline in inventories suggests that: A. aggregate expenditures are less than the business sector expected them to be. B. aggregate expenditures exceed production. C. actual investment exceeds saving. D. planned investment is greater than consumption.

B. aggregate expenditures exceed production.

17. In 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. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

17. If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause: A. a rightward shift in the investment demand schedule. B. an $8 billion downshift in the consumption schedule. C. a $4 billion upshift in the consumption schedule. D. a $12 billion downshift in the consumption schedule.

B. an $8 billion downshift in the consumption schedule.

14. 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. and reserves of commercial banks both decrease.

What are "mortgage-backed securities?" A. Company stock shares for financial institutions that lend to home buyers. B. Bonds backed by mortgage payments. C. Treasury bills and savings bonds that banks sold to maintain liquidity during the mortgage default crisis. D. Insurance against mortgage loan defaults.

B. bonds backed by mortgage payments.

The largest component of the money supply (M1) is: A. currency in bank vaults. B. currency in circulation. C. checkable deposits. D. stock certificates.

B. currency in circulation

6. Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. current account = $+40 billion; capital account = $+20 billion; financial account = $-50 billion. B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion. C. current account = $+10 billion; capital account = $+40 billion; financial account = $+50 billion. D. current account = $+30 billion; capital account = $-20 billion; financial account = $-50 billion.

B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion.

15. Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

1. Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B. deficits during recessions and surpluses during periods of demand-pull inflation.

3. The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve Bank and vault cash.

11. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: A. fall by 4 percentage points. B. fall by 2 percentage points. C. rise by 4 percentage points. D. rise by 2 percentage points.

B. fall by 2 percentage points.

8. Initially, the bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1250, the interest rate will: A. fall to 9 percent. B. fall to 8 percent. C. rise to 11 percent. D. rise to 12 percent.

B. fall to 8 percent.

10. Assuming labor forces of equal size, the production possibilities curves above suggest that workers in West Mudville will have: A. lower wages than workers in East Mudville before trade but equal wages after trade. B. higher wages than workers in East Mudville both before and after trade. C. lower wages than workers in East Mudville both before and after trade. D. higher wages than workers in East Mudville before trade but lower wages after trade.

B. higher wages than workers in East Mudville both before and after trade.

Coins in people's pockets and purses are: A. included in M1, but not in M2. B. included in both M1 and in M2. C. included in M2, but not in M1. D. excluded from M1 and M2 because people can exchange them for Federal Reserve notes.

B. included in both M1 and M2.

7. 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. increase in business taxes and costly government regulation.

25. In the above table, an increase in net exports of $10 would: A. increase real GDP by $10. B. increase real GDP by $30. C. decrease real GDP by $10. D. decrease real GDP by $30.

B. increase real GDP by $30.

6. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to: A. do nothing since the economy appears to be achieving full-employment real output. B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. C. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. D. increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1.

B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.

21. Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have: A. increased by $90 billion. B. increased by $20 billion. C. decreased by $70 billion. D. decreased by $20 billion.

B. increased by $20 billion.

47. An expansionary monetary policy may be frustrated if the: A. demand-for-money curve shifts to the left. B. investment-demand curve shifts to the left. C. saving schedule shifts downward. D. investment-demand curve shifts to the right.

B. investment-demand curve shifts to the left.

The Federal Reserve System: A. has the same status as the Supreme Court. B. is basically an independent agency. C. has the status of a Congressional committee. D. is an agency of the executive branch of the Federal government.

B. is basically an independent agency.

The amount of money reported as M2: A. is smaller than the amount reported as M1. B. is larger than the amount reported as M1. C. excludes coins and currency. D. includes large ($100,000 or more) certificates of deposit.

B. is larger than the amount reported as M1.

8. In the theory of comparative advantage, a good should be produced in that nation where: A. the production possibilities line lies further to the right than the trading possibilities line. B. its cost is least in terms of alternative goods that might otherwise be produced. C. its absolute cost in terms of real resources used is least. D. its absolute money cost of production is least.

B. its cost is least in terms of alternative goods that might otherwise be produced.

20. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,000. B. liabilities are $1,000. C. net worth is zero. D. profit is $1,000.

B. liabilities are $1,000.

38. Dumping of goods abroad: A. constitutes a general case for permanent tariffs. B. may be part of a firm's price discrimination strategy. C. may be part of a nation's strategy to rectify its trade deficit. D. drives up prices of the dumped goods.

B. may be part of a firm's price discrimination strategy.

When economists say that money serves as a medium of exchange, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

B. means of payment.

4. An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline.

B. more money is needed to finance a larger volume of transactions.

11. If a nation has a comparative advantage in the production of X, this means the nation: A. cannot benefit by producing and trading this product. B. must give up less of other goods than other nations in producing a unit of X. C. has a production possibilities curve identical to those of other nations. D. is not subject to increasing opportunity costs.

B. must give up less of other goods than other nations in producing a unit of X.

41. According to Dallas Federal Reserve economist W. Michael Cox, taken to its extreme, the logic of "buying American" implies that: A. we should buy everything from abroad. B. people should only consume what they can produce themselves. C. consumers should only buy goods from other states. D. the best quality goods are found in the United States.

B. people should only consume what they can produce themselves.

13. Refer to the above data. The domestic opportunity cost of: A. producing a ton of chips in Alpha is 1/5of a ton of fish. B. producing a ton of chips in Beta is 6 tons of fish. C. catching a ton of fish in Alpha is 5 tons of chips. D. catching a ton of fish in Beta is 6 tons of chips.

B. producing a ton of chips in Beta is 6 tons of fish.

39. 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. Which of the following would shift the money supply curve from MS1 to MS3? A. an increase in the discount rate B. purchases of U.S. securities by the Fed in the open market C. sales of U.S. securities by the Fed in the open market D. an increase in the reserve ratio

B. purchases of U.S. securities by the Fed in the open market

21. The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public.

B. rate at which the Federal Reserve Banks lend to commercial banks.

23. 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. reduce worker morale and work effort, and thus lower productivity.

40. The "Euro Zone": A. is another name for the European Union. B. refers to the common currency used by all European Union members. C. is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur. D. is the subset of the EU that uses a common currency.

B. refers to the common currency used by all European Union members.

(Last Word) Plastic cards that contain computer chips that store balances are known as: A. credit cards. B. smart cards. C. debit cards. D. E-cards.

B. smart cards.

If you place a part of your summer earning 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. store of value.

14. If the economy has a cyclically-adjusted budget surplus, this means that: A. the public sector is exerting an expansionary impact on the economy. B. tax revenues would exceed government expenditures if full employment were achieved. C. the actual budget is necessarily also in surplus. D. the economy is actually operating at full employment.

B. tax revenues would exceed government expenditures if full employment were achieved.

23. Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation: A. gold bullion will flow into Brazil. B. the Brazilian real will depreciate. C. the Mexican peso will depreciate. D. the Brazilian real will appreciate.

B. the Brazilian real will depreciate.

Checkable deposits include: A. both large and small-denominated time deposits. B. the deposits of banks and thrifts on which checks can be written. C. only the checkable deposits of commercial banks. D. only the checkable deposits of thrift institutions.

B. the deposits of banks and thrifts on which checks can be written

7. 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. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances.

To say that coins are "token money" means that: A. their face value is less than their intrinsic value. B. their face value is greater than their intrinsic value. C. their face value is equal to their intrinsic value. D. they are not legal tender.

B. their face value is greater than their intrinsic value.

Chapter One, Pentagon Federal Credit Union, and Boeing Employee Credit Union, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

B. thrifts

Stock market price quotations best exemplify money serving as a(n): A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.

B. unit of account.

16. The U.S. supply of Japanese yen is: A. downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese. C. upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. D. downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

2. 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. varies inversely with the rate of interest.

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. 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.

(Last Word) It is unclear whether: A) high European rates of inflation reflect demand-pull or cost-push forces. B) high European rates of poverty can be reduced by by higher transfer payments. C) high European unemployment rates have resulted from high natural rates of unemployment or insufficient aggregate demand. D) European trade deficits stimulate or retard the European economies.

C

1. 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

23. In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should: A. encourage personal saving by increasing the interest rate on government bonds. B. decrease government expenditures. C. reduce tax rates and/or increase government spending. D. discourage private investment by increasing corporate income taxes.

C

8. 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

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a: A) rightward shift of the aggregate demand curve. B) leftward shift of the aggregate demand curve. C) movement downward along a fixed aggregate demand curve. D) decrease in aggregate supply.

C

Graphically, cost-push inflation is shown as a: A) leftward shift of the AD curve. C) leftward shift of AS curve. B) rightward shift of the AS curve. D) rightward shift of the AD curve.

C

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a: A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve. B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve. C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

C

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. C) rightward by $50 billion at each price level. B) rightward by $10 billion at each price level. D) leftward by $20 billion at each price level.

C

If the price of each input is $5, the per unit cost of production in the above economy is: A) $5. B) $2.75. C) $2.50. D) $.40.

C

In the above diagram, a shift from AS1 to AS2 might be caused by a(n): A) increase in market power of resource sellers. C) decrease in the prices of domestic resources. B) increase in the prices of imported resources. D) increase in business taxes.

C

In the above diagram, a substantial appreciation of the U.S. dollar with no immediate change in the U.S. price level would result in a: A) movement upward along an existing aggregate supply curve such as AS1 B) movement downward along an existing aggregate supply curve such as AS1 C) rightward shift of the aggregate supply curve, such as from AS1 to AS2 D) leftward shift of the aggregate supply curve, such as from AS1 to AS3 .

C

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

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

Monopoly or market power is the ability of a firm to: A) shift its demand curve to the right. C) set its price. B) shift its demand curve to the left. D) achieve economies of scale.

C

Other things equal, an improvement in productivity will: A) increase the equilibrium price level. C) shift the aggregate supply curve to the right. B) shift the aggregate supply curve to the left. D) shift the aggregate demand curve to the left.

C

Other things equal, an improvement in productivity will: A) shift the aggregate demand curve to the left. C) shift the aggregate supply curve to the right. B) shift the aggregate supply curve to the left. D) increase the price level.

C

Other things equal, appreciation of the dollar: A) increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B) increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C) decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D) decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

C

Refer to the above data. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to: A) 250 and $200, respectively. C) 150 and $300, respectively. B) 200 and $300, respectively. D) 150 adn $200, respectively.

C

Refer to the above diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A) decrease in aggregate supply. C) increase in investment spending. B) decrease in the amount of output supplied. D) decrease in net export spending.

C

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment and price stability is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

C

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the: A) shift of the AD curve in panel (A). C) move from point a to point b in panel (B). B) shift of the AS curve in panel (B). D) move from point a to point c in panel (C).

C

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C)

C

the Federal government owes to holders of U.S. securities.

The public debt is the amount of money that:

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

C

Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1 to AE2 would: A) move the economy from A to C along AD1 C) increase aggregate demand from AD1 to AD2 B) move the economy from C to A along AD1 D) decrease aggregate demand from AD2 to AD1 .

C

Refer to the above table. If equilibrium real GDP is $31 billion, the equilibrium price level will be: A) 128. B) 125. C) 122. D) 119. E) 116.

C

Refer to the above table. The interest-rate effect of changes in the price level is shown by columns: A) (1) and (4) of the table. C) (1) and (3) of the table. B) (5) and (6) of the table. D) (2) and (4) of the table.

C

The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model: A) changes in the price level have no effect on the equilibrium level of GDP. B) an increase in the price level increases the real value of wealth. C) the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level. D) the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

C

The aggregate supply curve (short-run) is upsloping because: A) wages and other resource prices match changes in the price level. B) the price level is flexible upward but inflexible downward. C) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D) wages and other resource prices are flexible upward but inflexible downward.

C

The aggregate supply curve (short-run): A) slopes downward and to the right. C) slopes upward and to the right. B) graphs as a vertical line. D) graphs as a horizontal line.

C

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

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

The interest-rate and real-balances effects are important because they help explain: A) rightward and leftward shifts of the aggregate demand curve. B) why fiscal policy cannot be used effectively to curb inflation. C) the shape of the aggregate demand curve. D) the shape of the aggregate supply curve.

C

The per unit cost of production in the economy described above is: A) $.50. B) $1. C) $2. D) $5.

C

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: A) the foreign purchases effect. B) inflexible product prices. C) wage contracts. D) the wealth effect.

C

Which of the above diagrams best portrays an improvement in expected rates of return on investment? A) A B) B C) C D) D

C

Which of the above diagrams best portrays the effects of an increase in consumer spending? A) A B) B C) C D) D

C

Which of the above diagrams best portrays the effects of an increase in foreign spending on U.S. products? A) A B) B C) C D) D

C

Which of the following is incorrect? A) As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C) When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

C

Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left? A) a reduction in business taxes B) production bottlenecks occurring when producers near full plant capacity C) an increase in the price of imported resources D) deregulation of industry

C

8. Refer to the above information. Money supply M1 for this economy is: A. $60. B. $70. C. $130. D. $140.

C. $130.

22. Assuming that Alpha and Beta are the only two nations in the world, the equilibrium world price of steel must be between: A. $5 and $4. B. $4 and $3. C. $3 and $2. D. $2 and $1.

C. $3 and $2.

3. In the data above for a private closed economy, if gross investment is $12 billion, equilibrium GDP is: A. $380. B. $370. C. $360. D. $350.

C. $360.

16. Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by: A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.

C. $40 billion.

9. At equilibrium in the above market for money, the total amount of money demanded is: A. $500. B. $480. C. $460. D. $440.

C. $460.

16. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by: A. $0 billion. B. $7 billion. C. $9 billion. D. $10 billion.

C. $9 billion.

18. Refer to the above diagram. At the equilibrium exchange rate: A. $8 will buy 1 euro. B. 0.8 euros will buy $1. C. 1.25 euros will buy $1. D. $1 will buy 8 euros.

C. 1.25 euros will buy $1.

24. Refer to the above information. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be: A. 5. B. 8. C. 10. D. 20.

C. 10.

31. With a $1 per unit tariff, the quantities sold by foreign and domestic producers respectively will be: A. 1 unit and 15 units. B. 7 units and 4 units. C. 11 units and 4 units. D. indeterminate.

C. 11 units and 4 units.

18. When the legal reserve ratio is 30 percent, the monetary multiplier is: A. 5. B. 4. C. 3.33. D. 2.5.

C. 3.33.

27. Refer to the above diagram for the Federal funds market. If the Fed supplies $300 billion in reserves, the equilibrium Federal funds rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

C. 5.0 percent.

20. At a world price of $5: A. Alpha will want to import 50 units of steel. B. Beta will want to import 60 units of steel. C. Alpha will want to export 50 units of steel. D. neither country will want to export steel.

C. Alpha will want to export 50 units of steel.

Which of the following programs involves the Federal Reserve directly purchases short-term lending instruments from corporation? A. Term Asset-Backed Securities Loan Facility B. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility C. Commercial Paper Funding Facility D. Term Securities Lending Facility

C. Commercial Paper Funding Facility

22. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

5. 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. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

29. 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. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself.

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008? A. High interest rates on mortgage loans were the primary cause of defaults. B. The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. C. Prior to the rise in defaults banks had become lax in their lending practices, resulting in a number of bad loans. D. The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.

C. Prior to the rise in defaults banks had become lax in their lending practices, resulting in a number of bad loans.

25. 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. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations.

18. 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. 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.

Which of the following statements best describe 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. 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.

2. Which of the following is incorrect? A. As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B. As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

3. When economists say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C. a monetary unit for measuring and comparing the relative values of goods.

22. 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. aggregate supply decreases and aggregate demand increases

Small-denominated time deposits, by definition: A. mature in one month or less. B. mature in one year or less. C. are less than $100,000. D. are held by state and local banks only.

C. are less than $100,000.

13. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit: A. at all levels of GDP. B. at any level of GDP above $400. C. at any level of GDP below $400. D. only when GDP is stable.

C. at any level of GDP below $400.

13. 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. banks borrow reserves from one another on an overnight basis.

25. Which is an example of a nontariff barrier (NTB)? A. an export subsidy B. an excise tax on the physical volume of imported goods C. box-by-box inspection requirements for imported fruit D. an excise tax on the dollar value of imported goods

C. box-by-box inspection requirements for imported fruit

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in: A. mutual fund companies and pension fund companies. B. thrifts and insurance companies. C. commercial banks and thrifts. D. securities firms and insurance companies.

C. commercial banks and thrifts

27. 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. construction of highways

Which of the following is the basic economic policy function of the Federal Reserve Banks? A. holding the deposits or reserves of commercial banks B. acting as fiscal agents for the Federal government C. controlling the supply of money D. the collection or clearing of checks among commercial banks

C. controlling the supply of money

8. 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. create checkable deposits in exchange for IOUs.

15. Other things equal, serious recession in the economies of U.S. trading partners will: A. have no perceptible impact on the U.S. economy. B. cause inflation in the U.S. economy. C. depress real output and employment in the U.S. economy. D. stimulate real output and employment in the U.S. economy.

C. depress real output and employment in the U.S. economy.

A Federal budget deficit is financed by the:

Government issuance or sale of Treasury securities

14. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A. Americans will buy fewer Korean goods and services. B. the won has appreciated in value. C. fewer U.S. goods and services will be demanded by the South Koreans. D. the dollar has depreciated in value.

C. fewer U.S. goods and services will be demanded by the South Koreans.

33. 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. 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.

17. The American Recovery and Reinvestment Act of 2009: A. created a $700 billion rescue package for financial institutions. B. cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. C. implemented a $787 billion package of tax cuts and government expenditure increases. D. substantially lowered interest rates in an attempt to stimulate investment spending.

C. implemented a $787 billion package of tax cuts and government expenditure increases.

24. 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. import quota.

4. A nation's capital and financial account: A. contains inpayment items, but not outpayment items. B. includes service exports and service imports. C. includes both inpayments and outpayments. D. includes net investment income and net transfers.

C. includes both inpayments and outpayments.

22. Suppose that, for every 1-percentage point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will: A. increase by $1 billion and the money supply will increase by $5 billion. B. decline by $1 billion and the money supply will decline by $10 billion. C. increase by $1 billion and the money supply will increase by $10 billion. D. increase by $10 billion and the money supply will increase by $100 billion.

C. increase by $1 billion and the money supply will increase by $10 billion.

19. In the above diagram, a shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A. decrease in aggregate supply. B. decrease in the amount of output supplied. C. increase in investment spending. D. decrease in net export spending.

C. increase in investment spending.

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore ineffective. C. increased by moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased by moral hazard problem by limiting losses from bad financial decisions.

22. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1000. B. liabilities are $300. C. net worth is $100. D. annual profit is $200.

C. net worth is $100.

23. The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore ineffective. C. increased the moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased the moral hazard problem by limiting losses from bad financial decisions.

10. The short-run aggregate supply curve represents circumstances where: A. both input and output prices are fixed. B. both input and output prices are flexible. C. input prices are fixed, but output prices are flexible. D. input prices are flexible, but output prices are fixed.

C. input prices are fixed, but output prices are flexible.

7. In the above diagram for a private closed 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. is $40 billion at all levels of GDP.

33. In the above diagram 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. is wy.

The near-money components of M2 are: A. equally liquid as the M1 components of M2. B. more liquid than the M1 components of M2. C. less liquid than the M1 components of M2. D. highly illiquid.

C. less liquid than the M1 components of M2.

7. Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if: A. the asset demand for money increased. B. the transactions demand for money increased. C. nominal GDP decreased. D. the overall price level rose.

C. nominal GDP decreased.

3. In which of the following situations is it certain that the quantity of money demanded by the public will decrease? A. nominal GDP decreases and the interest rate decreases B. nominal GDP increases and the interest rate decreases C. nominal GDP decreases and the interest rate increases D. nominal GDP increases and the interest rate increases

C. nominal GDP decreases and the interest rate increases

(Consider This) Credit cards are: A. the fastest growing component of the M1 money supply. B. near-monies that are part of the M2 money supply but not the M1 money supply. C. not money, officially defined. D. also known as time deposits.

C. not money, officially defined

23. Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts? A. the discount rate B. the reserve ratio C. open market operations D. the Federal funds rate

C. open market operations

5. The aggregate supply curve (short-run) is upsloping because: A. wages and other resource prices match changes in the price level. B. the price level is flexible upward but inflexible downward. C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D. wages and other resource prices are flexible upward but inflexible downward.

C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

20. If government desired to raise the equilibrium GDP to $650, it could: A. raise G by $45 and reduce T by $10. B. raise G by $40 and reduce T by $30. C. raise G by $30 or reduce T by $40. D. raise both G and T by $40.

C. raise G by $30 or reduce T by $40.

5. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to: A. increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2. B. reduce taxes on businesses to shift the aggregate supply curve leftward. C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. D. do nothing since the economy appears to be achieving full-employment real GDP.

C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2.

3. If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level.

C. rightward by $50 billion at each price level.

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as: A. thrifts. B. pension fund companies. C. securities firms. D. insurance companies.

C. security firms

9. Other things equal, an improvement in productivity will: A. increase the equilibrium price level. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. shift the aggregate demand curve to the left.

C. shift the aggregate supply curve to the right.

(Last Word) Smart cards sold by retailers, such as single-store gift cards and prepaid phone cards are known as: A. credit cards. B. debit cards. C. stored-value cards. D. E-cards.

C. stored-value cards.

17. If the world price for this product is $1.60, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

C. surplus of 160 units, which it will export.

If you are estimating your total expenses for school next semester, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

C. unit of account

11. In prosperous times commercial banks are likely to hold very small amounts of excess reserves because: A. the Fed wants commercial banks to increase the money supply during economic expansions. B. it is very costly to transfer funds between commercial banks and the central banks. C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves. D. the Federal Reserve Banks want to minimize their interest payments on such deposits.

C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

25. To say that "the U.S. public debt is mostly held internally" is to say that: A. only interest payments on the public debt are an economic burden. B. official figures understate the size of the public debt. C. the bulk of the public debt is owned by U.S. citizens and institutions. D. the public debt is equal to the land and buildings assets owned by the Federal government.

C. the bulk of the public debt is owned by U.S. citizens and institutions.

16. The four main tools of monetary policy are: A. tax rate changes, the discount rate, open-market operations, and the Federal funds rate. B. tax rate changes, changes in government expenditures, open-market operations, and the term auction facility. C. the discount rate, the reserve ratio, the term auction facility, and open-market operations. D. changes in government expenditures, the reserve ratio, the Federal funds rate, and the discount rate.

C. the discount rate, the reserve ratio, the term auction facility, and open-market operations.

36. Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the infant-industry argument

C. the diversification-for-stability argument

1. When the receipts given by goldsmiths to depositors were used to make purchases: A. the gold standard was created. B. existing banking laws were violated. C. the receipts became in effect paper money. D. a fractional reserve banking system was created.

C. the receipts became in effect paper money.

16. The immediate primary cause of the swing from Federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was: A. the tax cuts of 2001. B. spending increases relating to the wars in Afghanistan and Iraq. C. the recession of 2001. D. the acceleration of inflation in 2001 and 2002.

C. the recession of 2001.

10. In the aggregate expenditures model, technological progress will shift the investment schedule: A. downward and increase aggregate expenditures. B. downward and decrease aggregate expenditures. C. upward and increase aggregate expenditures. D. upward and decrease aggregate expenditures.

C. upward and increase aggregate expenditures.

37. A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that: A. labor costs and product prices are not related. B. there is no discernible relationship between wage rates and labor productivity. C. wage rates and labor productivity are directly related. D. wage rates and labor productivity are inversely related.

C. wage rates and labor productivity are directly related.

If the price index rises from 100 to 120, the purchasing power values of the dollar: A. may either rise or fall. B. will rise by one-sixth. C. will fall by one-sixth. D. will rise by 20 percent.

C. will fall by one-sixth

13. If the price index rises from 100 to 120, the purchasing power value of the dollar: A. may either rise or fall. B. will rise by one-sixth. C. will fall by one-sixth. D. will rise by 20 percent.

C. will fall by one-sixth.

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

Capital goods.

The multiplier effect relates:

Changes in spending to changes in real GDP

When a check is cleared against a bank, the bank will lose:

Checkable deposits and reserves

Money supply M1 does not include the currency held by:

Commercial banks

1. 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

2. The real-balances effect indicates that: A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D

21. An economist who favored expanded 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.

D

An increase in investment spending caused by higher expected rates of return will: A) shift the aggregate supply curve to the left. B) move the economy up along an existing aggregate demand curve. C) shift the aggregate expenditures curve downward and the aggregate demand curve to the left. D) shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

D

An increase in net exports will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

D

Given a fixed upsloping AS curve, a rightward shift of the AD curve will: A) cause cost push inflation. C) increase the price level but not real output. B) increase real output but not the price level. D) increase both the price level and real output.

D

In deriving the aggregate demand curve from the aggregate expenditures model we note that: A) the real-balances effect is irrelevant to both models. B) a change in the price level will have no impact on the aggregate expenditures schedule. C) an increase (decrease) in the price levels shifts the aggregate expenditures schedule upward (downward). D) an increase (decrease) in the price level shifts the aggregate expenditures schedule downward (upward).

D

In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A) business taxes and government regulation. C) the prices of domestic resources. B) the prices of imported resources. D) productivity.

D

In the above diagram, the economy's short-run AS curve is line ___ and its long-run AS curve is line ___. A) 1; 3. B) 2; 4. C) 3; 4. D) 2; 1.

D

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

D

Refer to the above diagram. If aggregate supply is AS1 and aggregate demand is AD0, then: A) at any price level above G a shortage of real output would occur. B) F represents a price level that would result in a surplus of real output of AC. C) a surplus of real output of GH would occur. D) F represents a price level that would result in a shortage of real output of AC.

D

Refer to the above diagram. If equilibrium real output is Q2, then: A) aggregate demand is AD1 C) producers will supply output level Q1 B) the equilibrium price level is P1 D) the equilibrium price level is P2 .

D

Refer to the above diagram. If the equilibrium price level is P1, then: A) aggregate demand is AD2 C) the equilibrium output level is Q2 B) the equilibrium output level is Q3 D) producers will supply output level Q1 .

D

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and 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

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (A) and (C).

D

Refer to the above information. All else being equal, if the price of each input increased from $4 to $6, productivity would: A) fall from 2 to 3. B) fall from .50 to .33. C) rise from 1 to 2. D) remain unchanged.

D

Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the per unit cost of production will rise by about: A) 100 percent. B) 50 percent. C) 40 percent. D) 30 percent

D

Refer to the above information. The level of productivity is: A) 20. B) 10. C) 5. D) 2.

D

Refer to the above table. A decline in the international value of the dollar would: A) increase the values in columns (5) and (6) and reduce aggregate demand. B) decrease the values in columns (5) and (6) and increase aggregate demand. C) decrease the values in column (5), increase the values in column (6), and reduce aggregate demand. D) increase the values in column (5), decrease the values in column (6), and increase aggregate demand.

D

Refer to the above table. If the equilibrium level of real GDP is $43 billion, its level of consumption will be: A) $20 billion. B) $22 billion. C) $24 billion. D) $26 billion.

D

Shifts in the aggregate supply curve are caused by changes in: A) consumption spending. B) the quantity of real output demanded. C) the quantity of real output supplied. D) one or more of the determinants of aggregate supply.

D

The aggregate supply curve (short-run) slopes upward and to the right because: A) changes in wages and other resource prices completely offset changes in the price level. B) the price level is flexible upward but inflexible downward. C) supply creates its own demand. D) wages and other resource prices adjust only slowly to changes in the price level.

D

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

The equilibrium price level and level of real output occur where: A) real output is at its highest possible level. B) export equal imports. C) the price level is at its lowest level. D) the aggregate demand and supply curves intersect.

D

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A) shift the aggregate demand curve leftward. B) shift the aggregate supply curve leftward. C) decrease U.S. exports and increase U.S. imports. D) increase U.S. exports and decrease U.S. imports

D

The foreign purchases effect: A) shifts the aggregate demand curve rightward. B) shifts the aggregate demand curve leftward. C) shifts the aggregate supply curve rightward. D) moves the economy along a fixed aggregate demand curve.

D

The graphical relationship between the price level and the amount of real GDP that businesses will offer for sale is known as the: A) aggregate demand curve. C) investment demand curve. B) investment supply curve. D) aggregate supply curve.

D

The real-balances effect indicates that: A) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B) a lower price level will decrease the real value of many financial assets and therefore reduce spending. C) a higher price level will increase the real value of many financial assets and therefore increase spending. D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D

Which of the above diagrams best portrays the effects of a substantial reduction in government spending? A) A B) B C) C D) D

D

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

Which of the following explains why the aggregate demand schedule is downward sloping: A) the real-balances effect C) the foreign purchases effect B) the interest-rate effect D) all of the above

D

Which of the following is a true statement? A) firms and resource suppliers generally find it easier to reduce prices than to raise them. B) as the price level increases, interest rates will rise and therefore consumption and investment spending will also rise. C) an initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes. D) a decline in aggregate demand will primarily affect real output and employment if prices are inflexible

D

Which of the following would not shift the aggregate supply curve? A) an increase in labor productivity C) a decline in business taxes B) a decline in the price of imported oil D) an increase in the price level

D

30. With a $1 per unit tariff, price and total quantity sold will be: A. $3 and 7 units. B. $5 and 2 units. C. $3 and 7 units. D. $2 and 11 units.

D. $2 and 11 units.

7. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of: A. $8,000. B. $15,000. C. $48,000. D. $25,000.

D. $25,000.

13. For the open economy shown above 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. $400 and 5.

4. This commercial bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

D. $5,000.

5. This bank can safely expand its loans by a maximum of: A. $7,000. B. $25,000. C. $12,000. D. $5,000.

D. $5,000.

17. After the deposit of $10 billion of new currency, the maximum amount by which this commercial banking system can expand the supply of money by lending is: A. $9 billion. B. $45 billion. C. $36 billion. D. $90 billion.

D. $90 billion.

13. The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that: A. 1 yen = 280 Swiss francs. B. 1 yen = 14 Swiss francs. C. 1 Swiss franc = 28 yen. D. 1 Swiss franc = 14 yen.

D. 1 Swiss franc = 14 yen.

The Federal Reserve System was created in: A. 1926. B. 1946. C. 1895. D. 1913.

D. 1913

9. In equilibrium the level of consumption spending will be: A. 170. B. 270. C. 160. D. 195.

D. 195.

6. Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be: A. 40 tons of pots. B. 20 tons of tea and 20 tons of pots. C. 20 tons of tea. D. 40 tons of tea.

D. 40 tons of tea.

10. The equilibrium interest rate is: A. 2 percent. B. 4 percent. C. 6 percent. D. 8 percent.

D. 8 percent.

12. In the above diagram for a private closed economy, the multiplier is: A. GF/DE. B. GF/GB. C. FE/GF. D. AB/GF.

D. AB/GF.

12. Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

29. Which of the following has contributed to large U.S. trade deficits in recent years? A. China fixing its exchange rate. B. Rapid increases in the price of oil. C. A declining U.S. saving rate. D. All of these have contributed.

D. All of these have contributed.

4. Differences in production efficiencies among nations in producing a particular good result from: A. different endowments of fertile soil. B. different amounts of skilled labor. C. different levels of technological knowledge. D. all of these.

D. all of these.

2. Which of the following statements is false? A. In recent years the United States has had large annual trade deficits in goods and services. B. The United States imports some of the same categories of goods as it exports. C. China has the largest share of world exports. D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

12. The above data show that: A. Beta has a comparative advantage in producing chips. B. Alpha has a comparative advantage in catching fish. C. Alpha is subject to constant costs and Beta is subject to increasing costs. D. Beta is more efficient than Alpha both in catching fish and in producing chips.

D. Beta is more efficient than Alpha both in catching fish and in producing chips.

18. In the above diagram, if aggregate supply is AS1 and aggregate demand is AD0, then: A. at any price level above G a shortage of real output would occur. B. F represents a price level that would result in a surplus of real output of AC. C. a surplus of real output of GH would occur. D. F represents a price level that would result in a shortage of real output of AC.

D. F represents a price level that would result in a shortage of real output of AC.

27. Which of the following resulted from the financial crisis of 2007-2008? A. A national bank holiday was declared that shut down banks for one week. B. The Fed raised reserve requirements to keep cash from flowing out of banks. C. The Fed raised interest rates to entice depositors to keep their money in banks. D. FDIC insurance was increased from $100,000 to $250,000 per account.

D. FDIC insurance was increased from $100,000 to $250,000 per account.

The group that sets the Federal Reserve System policy on buying and selling government securities (bill, 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. Federal Open Market Committee (FOMC)

A $20 bill is a: A. gold certificate. B. Treasury note. C. Treasury bill. D. Federal Reserve Note.

D. Federal Reserve Note.

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. Federal Reserve Notes.

9. 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. Granting a bank loan creates money; repaying a bank loan destroys money.

26. 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. Pc and z.

12. Which of the following best describes the built-in stabilizers as they function in the United States? A. The size of the multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

4. 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. Reductions in Federal tax rates on personal and corporate income.

Which of the following programs provides loans of U.S. securities to primary dealers for one-month terms, in an effort to enhance liquidity in U.S. securities markets? one-month terms, in an effort to enhance liquidity in U.S. securities markets? A. Primary Dealer Credit Facility B. Commercial Paper Funding Facility C. Term Asset-Backed Securities Loan Facility D. Term Securities Lending Facility

D. Term Securities Lending Facility

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. Troubled Asset Relief Program

32. Other things equal, which of the following would increase the Federal funds rate? A. a decrease in loan demand in the Federal funds market B. a decrease in the reserve ratio C. Fed purchases of government securities from banks D. a decline in excess reserves in the banking system

D. a decline in excess reserves in the banking system

24. Refer to the above diagram where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D' might be the result of: A. a relative decline in interest rates in Switzerland. B. a reduction in the United States' relative price level. C. a recession in the United States which slows its rate of growth. D. a relative decline in interest rates in the United States.

D. a relative decline in interest rates in the United States.

20. Under a system of freely flexible (floating) exchange rates a U.S. trade deficit with Mexico will tend to cause: A. the United States government to ration pesos to U.S. importers. B. a flow of gold from the United States to Mexico. C. an increase in the peso price of dollars. D. an increase in the dollar price of pesos.

D. an increase in the dollar price of pesos.

The member 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. are appointed for 14-year terms

14. During periods of rapid inflation, money may cease to work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D. because people and businesses will not want to accept it in transactions.D. because people and businesses will not want to accept it in transactions.

Currency in circulation is part of: A. M1 only. B. M2 not including M1. C. neither M1 nor M2. D. both M1 and M2.

D. both M1 and M2

19. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase the Fed could: A. sell $20 billion of U.S. securities to the banks. B. buy $20 billion of U.S. securities from the banks. C. sell $40 billion of U.S. securities to the banks. D. buy $40 billion of U.S. securities from the banks.

D. buy $40 billion of U.S. securities from the banks.

3. Which of the following is an example of a capital-intensive commodity? A. clothing B. wool C. sunflower seeds D. chemicals

D. chemicals

17. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

25. Under a system of fixed exchange rates, a nation that has chronic balance of payments deficits may: A. initiate protectionist trade policies. B. run short of international monetary reserves. C. be forced to invoke contractionary monetary and fiscal policies. D. do all of these.

D. do all of these.

Commercial banks and thrift institutions: A. differ because thrifts cannot make loans. B. differ because thrifts cannot offer checkable deposits. C. have become less similar in recent years. D. have become increasingly similar in recent years.

D. have become increasingly similar in recent years

8. 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. include resource prices and resource productivity.

Supply factors in economic growth include the following, except:

Increases in purchases of output

28. Relatively rapid U.S. growth between 1999 and 2000, and from 2003 to 2007, contributed to large U.S. trade deficits by: A. increasing U.S. national income, which decreased U.S. exports. B. reducing real interest rates in the United States. C. increasing U.S. tax revenues and reducing the Federal budget deficit. D. increasing U.S. national income, which increased U.S. imports.

D. increasing U.S. national income, which increased U.S. imports.

3. 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. increasing taxes by $20 billion.

The M2 money supply includes: A. stock certificates. B. currency in bank vaults. C. the cash value of life insurance policies. D. individual shares in money market mutual funds.

D. individual shares in money market mutual funds.

26. If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal): A. both U.S. imports and U.S. exports to rise. B. both U.S. imports and U.S. exports to fall. C. U.S. exports to fall and U.S. imports to increase. D. inflation to occur.

D. inflation to occur.

26. In 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. inflationary expenditure gap is ei.

The purchasing power of the dollar: A. has been increasing in recent years because of economic growth. B. varies directly with the cost-of-living index. C. is inversely related to the level of aggregate demand. D. is the reciprocal of the price level.

D. is the reciprocal of the price level

Which of the following is not part of the M2 money supply? A. money market mutual fund balances B. money market deposit accounts C. currency D. large-denominated time deposits

D. large-denominated time deposits

2. Refer to the above diagrams. Other things equal, an interest rate decrease will: A. shift curve A to the right and shift curve B upward. B. shift curve A to the left and shift curve B downward. C. leave curve A in place but shift curve B downward. D. leave curve A in place but shift curve B upward.

D. leave curve A in place but shift curve B upward.

25. Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: A. insurance companies. B. thrifts. C. commercial banks. D. mutual funds companies.

D. mutual funds companies.

Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: A. insurance companies. B. thrifts. C. commercial banks. D. mutual funds companies.

D. mutual funds companies.

An important function of the Federal Reserve Bank is to: A. supervise the liquidation of the assets of bankrupt state banks. B. help large commercial banks develop correspondent relationships with smaller commercial banks. C. advise commercial banks as to the most profitable ways of reinvesting profits. D. provide facilities by which commercial banks and thrift institutions may collect checks.

D. provide facilities by which commercial banks and thrift institutions may collect checks.

24. In the above table, if the full-employment real GDP is $100 the: A. inflationary expenditure gap is $30. B. inflationary expenditure gap is $10. C. recessionary expenditure gap is $30. D. recessionary expenditure gap is $10.

D. recessionary expenditure gap is $10.

18. Refer to the above data. Suppose the Fed sold $10 billion of U.S. securities to the banks. This would: A. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. B. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion. C. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

8. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should: A. increase government expenditures by $80 billion. B. reduce government expenditures by $40 billion. C. reduce taxes by $40 billion. D. reduce taxes by $80 billion.

D. reduce taxes by $80 billion.

20. When the required reserve ratio is increased, the excess reserves of member banks are: A. reduced, but the multiple by which the commercial banking system can lend is unaffected. B. reduced and the multiple by which the commercial banking system can lend is increased. C. increased and the multiple by which the commercial banking system can lend is increased. D. reduced and the multiple by which the commercial banking system can lend is reduced.

D. reduced and the multiple by which the commercial banking system can lend is reduced.

48. In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of: A. the crowding-out effect. B. "pulling on a string." C. the Taylor rule. D. the liquidity trap.

D. the liquidity trap.

16. The Federal Open Market Committee (FOMC) is comprised of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

National income is the sum of employee compensation, profits, and the following items, except:

Depreciation or consumption of fixed capital

The short-run aggregate supply curve shows the:

Direct relationship between the price level and real GDP produced

What economic concept would be most closely associated with a situation where an aluminum plant expands its operations and uses extensive computerization in the production line to reduce per-unit costs of production?

Economies of scale

cyclically-adjusted deficit.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the:

Federal Open Market Committee (FOMC).

As it relates to Federal Reserve activities, the acronym FOMC describes the:

Federal Open Market Committee.

Paper money (currency) in the United States is issued by the:

Federal Reserve Banks.

A $20 bill is a:

Federal Reserve Note

The paper currencies of the U.S. are also called:

Federal Reserve notes

C

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. B) rightward by $10 billion at each price level. C) rightward by $50 billion at each price level. D) leftward by $20 billion at each price level.

D

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 $12billion. B) reducing government expenditures by $60 billion. C) increasing taxes by $15 billion. D) increasing taxes by $20 billion.

increasing taxes by $20 billion.

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:

shift the AD curve to the left.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

An increase in expected future income will:

Increase aggregate demand

not change the size of the public debt.

Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the above economy would:

The major statistics that provide macroeconomists a picture of the health of an economy include the following, except:

Prices of oil and gasoline

"GDP price index" measures changes in the:

Prices of the output produced in the nation

D

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is: A) 20. B) 10. C) 5. D) 2.

increased by $20 billion.

Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:

reducing the current level of investment.

The most likely way the public debt burdens future generations, if at all, is by:

leftward shift in the economy's aggregate demand curve.

Which of the following represents the most contractionary fiscal policy?

D

Which of the following represents the most contractionary fiscal policy? A) a $30 billion tax cut B) a $30 billion increase in government spending C) a $30 billion tax increase D) a $30 billion decrease in government spending

Efficiency wages are:

above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Money functions as:

all of these.

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit.

In a private and closed economy, when aggregate expenditures exceed GDP:

business inventories will fall

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

capital goods and durable consumer goods.

The phrase "too much money chasing too few goods" best describes:

demand-pull inflation.

If at some level of GDP the economy is experiencing an unintended decreased in inventories:

domestic output will increase

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right

Other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right.

A decrease in per unit production costs will shift the aggregate supply curve leftward.

false

An increase in imports (independently of a change in the U.S. price level) will increase both U.S. aggregate supply and U.S. aggregate demand.

false

An increase in wealth from a substantial increase in stock prices will move the economy along a fixed aggregate demand curve.

false

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve.

false

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

false

The interest-rate effect is one of the determinants of aggregate demand.

false

Prices and wages tend to be:

flexible upward, but inflexible downward.

In the diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.remain unchanged.

In the diagram, a shift from AS1 to AS3 might be caused by a(n):

increase in the prices of imported resources.

A rightward shift of the AD curve in a the very flat part of the upsloping AS curve will:

increase real output by more than the price level

The achievement of full employment through time will:

increase the realized rate of economic growth.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The amount of money reported as M2:

is larger than the amount reported as M1.

The purchasing power of the dollar:

is the reciprocal of the price level.

Commercial banks monetize claims when they:

make loans to the public.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

(Consider This) Credit card balances are:

not a component of M1 or M2.

A rightward shift in the aggregate supply curve is best explained by an increase in:

productivity

Productivity measures:

real output per unit of input.

The reserve ratio refers to the ratio of a bank's:

required reserves to its checkable-deposit liabilities.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

shift the AD curve to the left.

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect.

Research involving industrially advanced countries suggests that:

the less independent the central bank, the higher the average annual rate of inflation.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

the price level is inflexible downward and a recession has occurred.

In defining money as M1, economists exclude time deposits because

they are not directly or immediately a medium of exchange

Which of the following are all assets to a commercial bank?

vault cash, property, and reserves

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

wage contracts.

The aggregate supply curve(short-run) slopes upward and to the right because:

wages and other resources prices adjust only slowly to change in the price level

Sharply rising oil prices are most likely to lead to a:

Negative supply shock

6. 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. Federal Reserve Banks.

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. Federal Reserve Banks.

Refer to the given list. The assets that are not included in either M1 or M2 are:

1. Large-denominated ($100,000 and over) time deposits 5. Stock certificates 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults

increases in government spending during recession and tax increases during inflation.

An economist who favored expanded government would recommend:

Refer to the list above. Which items are included in the M2 money supply, but not the M1 money supply?

1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 5. Small time deposits

tax cuts during recession and reductions in government spending during inflation.

An economist who favors smaller government would recommend:

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. Federal Reserve System

D

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A) net export effect. B) wealth effect. C) real-balances effect. D) multiplier effect.

increase the cyclically-adjusted deficit but reduce the actual deficit.

An effective expansionary fiscal policy will:

The service a homeowner performs when she mows her yard is not included in GDP because:

This is a nonmarket transaction

25. Refer to the above information and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by: A. $100. B. $90. C. $900. D. $1,000.

B. $90.

If P equals the price level expressed as an index number and SV equals the value of the dollar then: A. P = $V - 1. B. $V = 1/P. C. 1 = $V/P. D. $V = P - 1.

B. $V=1/P

22. In the above table, the after-tax MPC in the economy shown is: A. .5. B. .67. C. .75. D. .8.

B. .67.

In January 2010, the supply of money (M1) in the United States was about: A. $847 billion. B. $1,676 billion. C. $1,365 billion. D. $8,463 billion.

B. 1,676 billion.

11. The equilibrium price level is: A. 150. B. 200. C. 250. D. 300.

B. 200.

8. The equilibrium level of income (Y) is: A. 360. B. 225. C. 200. D. 135.

B. 225.

The M2 money supply is about _______ times larger than the M1 money supply. A. 1.5 B. 5 C. 10 D. 20

B. 5

The cyclically-adjusted budget is less likely to show a deficit than is the actual budget.

Which of the following statements is correct?

There is a tendency for the public debt to grow during recessions.

Which of the following statements is correct?

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

Which of the following represents the most contractionary fiscal policy?

A $30 billion decrease in government spending.

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of:

1,500

If the reserve ratio is 100 percent, the value of the monetary multiplier is:

1.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. The per-unit cost of production in this economy is:

$0.10.

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

$1,000.

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out:

$200,000.

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is:

$320 billion.

Picture

$350

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:

$40 billion

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by:

$5,000 and $4,000

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

$5,000.

Supposes that the level of GDP increases by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:

$50 billion

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

$50 billion.

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:

$6 billion

How much did the U.S. Congress allocate to the Troubled Asset Relief Program in 2008?

$700 billion

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Picture Refer to the above data. The commercial banking system has excess reserves of:

$9 billion.

reduce the size of the multiplier and make the economy more stable.

(Advanced analysis) Answer the question on the basis of the following before-tax consumption schedule for an economy: GDP: $100 200 300 400 500 Consumption: $140 200 260 320 380 Refer to the above data. A 10 percent proportional tax on income would:

GDP: $100 200 300 400 500 Consumption: $134 188 242 296 350

(Advanced analysis) Answer the question on the basis of the following before-tax consumption schedule for an economy: GDP: $100 200 300 400 500 Consumption: $140 200 260 320 380 Refer to the above data. If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

both consumption and saving to increase by smaller and smaller absolute amounts as GDP rises.

(Advanced analysis) Answer the question on the basis of the following before-tax consumption schedule for an economy: GDP: $100 200 300 400 500 Consumption: $140 200 260 320 380 Refer to the above data. The 10 percent proportional tax on income would cause:

5:1; 2:1

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______; by 2040 it is projected to be _________.

7.6

(Last Word) The combined cost of Social Security and Medicare programs was what percent of U.S. GDP in 2008?

Restricting immigration of skilled working-age adults.

(Last Word) Which of the following would not help to relieve the Social Security and Medicare shortfalls?

28. Which of the following would not help to relieve the Social Security and Medicare shortfalls? A. Extending the Social Security tax to a higher level of earnings. B. Restricting immigration of skilled working-age adults. C. Increasing the retirement age for collecting Social Security and Medicare benefits. D. Reducing Social Security and Medicare benefits for wealthier individuals.

**B. Restricting immigration of skilled working-age adults.

Refer to the given list. The M1 definition of money comprises item(s):

3. Currency in Circulation 6. Checkable Deposits

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines:

4 and 3.

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be:

40 percent.

20. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A. increasing government spending by $4 billion. B. increasing government spending by $40 billion. C. decreasing taxes by $4 billion. D. increasing taxes by $4 billion.

A

22. Discretionary fiscal policy will stabilize the economy most when: A. deficits are incurred during recessions and surpluses during inflations. B. the budget is balanced each year. C. deficits are incurred during inflations and surpluses during recessions. D. budget surpluses are continuously incurred.

A

A rightward shift of the AD curve in the very flat part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output.

A

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. C) rightward by $40 billion at each price level. B) rightward by $20 billion at each price level. D) leftward by $20 billion at each price level.

A

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A) output would rise. C) price level would necessarily fall. B) output would fall. D) price level would necessarily rise.

A

If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect: A) inflation to occur. C) the aggregate demand curve to shift leftward. B) the aggregate demand curve to shift rightward. D) the aggregate supply curve to shift leftward.

A

Refer to the above table. A decrease in the interest rate would: A) increase the values in column (3) and increase aggregate demand. B) decrease the values in column (3) and increase aggregate demand. C) increase the values in column (2) and decrease aggregate demand. D) decrease the values in column (2) and decrease aggregate demand.

A

Refer to the above table. The real-balances effect of changes in the price level is: A) shown by columns (1) and (2) of the table. C) shown by columns (1) and (4) of the table. B) shown by columns (1) and (5) of the table. D) not shown by the data in the table.

A

Which one of the following would not shift the aggregate demand curve?

A change in the price level.

The required-reserve ratio is equal to:

A commercial bank's required reserves divided by its checkable-deposit liabilities

D

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.

A

A decline in investment will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

Which of the following is most likely to be an indication of higher unemployment?

A decrease in real GDP

A

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

B

A leftward shift of the AS curve might be caused by a(n): A) increase in productivity. B) increase in the prices of imported resources. C) decrease in the prices of domestic resources. D) decrease in business taxes.

require no legislative action by Congress to be made effective.

A major advantage of the built-in or automatic stabilizers is that they:

C

A major advantage of the built-in or automatic stabilizers is that they: A) simultaneously stabilize the economy and reduce the absolute size of the public debt. B) automatically produce surpluses during recessions and deficits during inflations. C) require no legislative action by Congress to be made effective. D) guarantee that the Federal budget will be balanced over the course of the business cycle.

Currency (paper money plus coins) constitutes about: A. 67 percent of the U.S. M1 money supply. B. 51 percent of the U.S. M1 money supply. C. 49 percent of the U.S. M1 money supply. D. 33 percent of the U.S. M1 money supply.

B. 51 percent of the U.S. M1 money supply.

A

A progressive tax is such that: A) tax rates are higher the greater one's income. B) the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. C) entrepreneurial income is exempt from taxation. D) the revenues it yields are spent on transfer payments.

C

A rightward shift of the AS curve might be caused by a(n): A) increase in market power of resource sellers. B) increase in the prices of imported resources. C) decrease in the prices of domestic resources. D) increase in business taxes.

D

A rightward shift of the AS curve might be caused by an increase in: A) business taxes and government regulation. B) the prices of imported resources. C) the prices of domestic resources. D) productivity.

The entry of women into the workforce since the 1960s resulted in:

A shift outward in the production possibilities curve of the United States

The Board of Governors of the Federal Reserve has ___ members. A. 5 B. 7 C. 9 D. 14

B. 7

23. Refer to the above information. If Moolah Bank is legally "loaned up," the reserve requirement must be: A. 10 percent. B. 15 percent. C. 20 percent. D. 25 percent.

A. 10 percent.

In 2009, approximately how much if the money on the deposit was held by the three largest U.S. banks? A. 30 percent. B. 50 percent. C. 70 percent. D. 90 percent.

A. 30

4. In the above diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines: A. 4 and 3. B. 4 and 1. C. 2 and 4. D. 2 and 3.

A. 4 and 3.

19. The multiplier for this economy is: A. 4. B. 3. C. 2. D. 2.33.

A. 4.

23. The public debt declined in year: A. 6. B. 5. C. 4. D. 3.

A. 6.

21. At a world price of $2: A. Alpha will want to import 20 units of steel. B. Beta will want to export 20 units of steel. C. Alpha will want to export 20 units of steel. D. neither country will want to import steel.

A. Alpha will want to import 20 units of steel.

27. In the above diagram, the value of the multiplier for this economy is: A. BC/hg. B. BC/AB. C. ed/di. D. df/BC.

A. BC/hg.

What does it mean when economists say that home buyers are "underwater" on their mortgages? A. Buyers owe more on their mortgage than the properties are worth. B. Buyers are financially incapable of repaying their mortgages and bankruptcy is inevitable. C. Buyers are purchasing homes on flood plains and are highly susceptible to financial losses. D. Buyers are paying interest rates substantially higher than current market interest rates, creating interest payments that create financial hardship.

A. Buyers owe more on the properties than the properties are worth

How much did the U.S. Congress allocate to the Troubled Asset Relief Program in 2008? A. $170 billion B. $700 billion C. $787 billion D. $885 billion

B. 700 billion

Which of these pairs of financial institutions are most alike in terms of their main lines of business? A. Commercial banks and thrifts. B. Insurance companies and mutual fund companies. C. Thrifts and securities firms. D. Pension fund companies and commercial banks.

A. Commercial banks and thrifts

11. Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the Federal government. D. It is relatively scarce.

A. It is backed by gold.

22. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003? A. Japan exported much more to the United States during this period than it imported from the United States. B. Japan greatly increased its purchases of military equipment from the United States during this period. C. Japan's economy grew far faster than the U.S. economy during this period. D. Japan's government devalued the yen during this period.

A. Japan exported much more to the United States during this period than it imported from the United States.

Assuming no other changes, if balances in money market deposit accounts increase by $50 billion and small-denominated time deposits decrease by $50 billion, the: A. M1 and M2 money supplies will not change. B. M2 money supply will increase. C. M1 money supply will decline. D. M2 money supply will increase and the M1 money supply will decrease.

A. M1 and M2 money supplies will not change.

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M1 money supply will increase and M2 money supply will remain unchanged. D. M1 and M2 money supplies will both decline.

A. M1 money supply will decline and M2 money supply will remain unchanged.

What is the primary function of the Term Assets Backed Securities Loan Facility? A. Provide funding support for collateralized securities such as student, auto, and credit card loans. B. Provide securities loans to primary dealers for one-month terms. C. Provide overnight loans to primary dealers willing to post loan-backed securities as collateral. D. Provide loans to U.S. financial institutions to purchase commercial paper.

A. Provide funding support for collateralized securities such as student, auto, and credit card loans.

34. Which of the following statements is false? A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies. B. The United States Constitution forbids individual states from levying tariffs. C. The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression. D. The European Union has enhanced prosperity in Western Europe.

A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.

35. A high tariff on imported good X might reduce domestic employment in industry Y if: A. X is an input used domestically in producing Y. B. X and Y are substitute goods. C. X is an inferior good. D. Y is an inferior good.

A. X is an input used domestically in producing Y.

7. Refer to the above diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with: A. an expansionary fiscal policy. B. a major recession. C. a contractionary fiscal policy. D. severe demand-pull inflation.

A. an expansionary fiscal policy.

11. In the above diagram for a private closed economy, the upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects: A. an increase in investment expenditures. B. a decrease in consumption expenditures. C. an increase in the MPC. D. an increase in the APS.

A. an increase in investment expenditures.

40. 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 the MPC for the economy described by the figures is 0.8: A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level. B. an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level. C. a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level. D. a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level.

A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.

45. One of the strengths of monetary policy relative to fiscal policy is that monetary policy: A. can be implemented more quickly. B. is subject to closer political scrutiny. C. does not produce a net export effect. D. entails a larger spending income multiplier effect on real GDP.

A. can be implemented more quickly.

17. The U.S. demand for euros is: A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services. B. downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services. C. downsloping because the dollar price of euros and the euro price of dollars are directly related. D. upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.

"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. high-interest rate loans to home buyers with above average credit risks

The purchasing power of money and the price level vary: A. inversely. B. directly during recessions, but inversely during inflations. C. directly, but not proportionately. D. directly and proportionately.

A. inversely.

3. The current account in a nation's balance of payments includes: A. its goods exports and imports, and its services exports and imports. B. foreign purchases of domestic assets. C. purchases of foreign assets. D. all of these.

A. its goods exports and imports, and its services exports and imports.

16. A decrease in aggregate demand will cause a greater decline in real output the: A. less flexible is the economy's price level. B. more flexible is the economy's price level. C. steeper is the economy's AS curve. D. larger is the economy's marginal propensity to save.

A. less flexible is the economy's price level.

2. A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A. liabilities of $75 billion.

15. The commercial banking system borrows from the Federal Reserve Banks. 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. and reserves of commercial banks are both unchanged.

A. of commercial banks are unchanged, but their reserves increase.

21. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A. output would necessarily rise. B. output would necessarily fall. C. price level would necessarily fall. D. price level would necessarily rise.

A. output would necessarily rise.

1. The desire to hold money for transactions purposes arises because: A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money.

A. receipts of income and expenditures are not perfectly synchronized.

5. If a nation has a current account deficit and it does not have to make any inpayments or outpayments of official reserves, it must have a: A. surplus in its capital and financial account. B. balance of payments deficit. C. balance of payments surplus. D. deficit in its capital and financial account.

A. surplus in its capital and financial account.

2. 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. tax cuts during recession and reductions in government spending during inflation.

19. Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

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. they are privately owned, but managed in the public interest.

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. they can be readily used in purchasing godds and paying debts.

5. 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. they can be readily used in purchasing goods and paying debts.

The public debt is the:

Accumulation of all past deficits minus all past surpluses

Which of the following is not an adjustment made when comparing standards of living across countries?

Adjusting for different unemployment rates across countries

Which of the following economic regions has experienced the least growth in real GDP per capita since 1820?

Africa

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

The primary reason commercial banks must keep required reserves on deposit at the Fed is to:

Allow the Fed to control the amount of bank lending

Adding the market value of all final and intermediate goods and services in an economy in a given year would result in:

An amount greater than GDP for that year

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

An appreciation of the U.S. dollar.

a decrease in tax rates.

An appropriate fiscal policy for a severe recession is:

B

An appropriate fiscal policy for a severe recession is: A) a decrease in government spending. B) a decrease in tax rates. C) appreciation of the dollar. D) an increase in interest rates.

a tax rate increase.

An appropriate fiscal policy for severe demand-pull inflation is:

D

An appropriate fiscal policy for severe demand-pull inflation is: A) an increase in government spending. B) depreciation of the dollar. C) a reduction in interest rates. D) a tax rate increase.

C

An effective expansionary fiscal policy will: A) reduce a cyclical deficit, but necessarily increase the actual deficit. B) reduce a full-employment. C) increase the full-employment deficit but reduce the cyclical deficit. D) always result in a balanced actual budget once full-employment is achieved.

C

An efficiency wage is: A) a wage payment necessary to compensate workers for risk of injury on the job. B) a "wage" that contains a profit-sharing component as well as traditional hourly pay. C) an above-market wage that minimizes a firm's labor cost per unit of output. D) a wage that automatically rises with the national index of labor productivity.

rightward shift in the economy's aggregate demand curve.

An expansionary fiscal policy is shown as a:

Which combination of factors would most likely increase aggregate demand?

An increase in consumer wealth and a decrease in interest rates

Which of the following fiscal policy actions is most likely to increase aggregate supply?

An increase in government spending on infrastructure that increases private sector productivity.

D

An increase in net exports will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

Which of the following events would most likely reduce aggregate demand?

An increase in real interest rates

Which of the following would most likely shift the aggregate demand curve to the right?

An increase in stock prices that increases consumer wealth.

When cash is deposited in a check able-deposit account at a bank, there is:

An increase in the bank's liabilities

Which of the following would shift the consumption schedule downward?

An increase in the probability of a recession

Which of the following is a demand factor in economic growth?

An increase in total spending in the economy

.8 both before and after taxes.

Answer the question on the basis of the following before-tax consumption schedule for a closed economy: GDP: $0 100 200 300 400 Consumption: $40 120 200 280 360 Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the marginal propensity to consume is:

is regressive

Answer the question on the basis of the following before-tax consumption schedule for a closed economy: GDP: $0 100 200 300 400 Consumption: $40 120 200 280 360 Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the tax system:

neither increases nor decreases built-in stability.

Answer the question on the basis of the following before-tax consumption schedule for a closed economy: GDP: $0 100 200 300 400 Consumption: $40 120 200 280 360 Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, we can conclude that the tax:

GDP: $0 100 200 300 400 Consumption: $8 88 168 248 320

Answer the question on the basis of the following before-tax consumption schedule for a closed economy: GDP: $0 100 200 300 400 Consumption: $40 120 200 280 360 Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy, the consumption schedule will be:

3 and 4

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the above information. The administrative lag of fiscal policy is reflected in events:

5.

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the above information. The operational lag of fiscal policy is reflected in event(s):

1 and 2.

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the above information. The recognition lag of fiscal policy is reflected in events:

A bank is in the position to make loans when required reserves:

Are less than actual reserves

(Consider This) Which of the following is not part of the M2 money supply? A. Currency in circulation. B. Credit card balances. C. Small-denominated time deposits of less than $100,000. D. Checkable deposits.

B. Credit card balances

A checkable deposit at a commercial bank is a(n):

Asset to the depositor and a liability to the bank

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of:

Assets

(Advanced analysis) Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1. Also, suppose that the price level is flexible downward. A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by: A) $50 billion and decrease real GDP by $50 billion. B) $50 billion and decrease real GDP by $25 billion. C) $10 billion and decrease real GDP by $10 billion. D) $10 billion and decrease real GDP by $25 billion.

B

10. A rightward shift in the aggregate supply curve is best explained by an increase in: A. business taxes. B. productivity. C. nominal wages. D. the price of imported resources.

B

12. Other things equal, a reduction in personal and business taxes can be expected to: A. increase aggregate demand and decrease aggregate supply. B. increase both aggregate demand and aggregate supply . C. decrease both aggregate demand and aggregate supply. D. decrease aggregate demand and increase aggregate supply.

B

13. The economy's long-run aggregate supply curve: A. slopes upward and to the right. B. is vertical . C. is horizontal. D. slopes downward and to the right.

B

16. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the: A. shift of the AD curve in panel (A). B. move from point a to point b in panel (B). C. shift of the AS curve in panel (B). D. move from point a to point c in panel (C).

B

17. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B

25. A tax reduction of a specific amount will be more expansionary, the: A. smaller is the economy's MPC. B. larger is the economy's MPC. C. smaller is the economy's multiplier. D. less the economy's built-in stability.

B

5. Other things equal, a decrease in the real interest rate will: A. expand investment and shift the AD curve to the left. B. expand investment and shift the AD curve to the right. C. reduce investment and shift the AD curve to the left. D. reduce investment and shift the AD curve to the right.

B

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

B

14. An upward shift of the aggregate expenditures schedule might be caused by: A. a decrease in exports, with no change in imports. B. a decrease in imports, with no change in exports. C. an increase in exports, with an equal decrease in investment spending. D. an increase in imports, with no change in exports.

B. a decrease in imports, with no change in exports.

12. Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. neither an asset nor a liability as viewed by the Federal Reserve Banks. D. part of M1, but not of M2.

B. a liability as viewed by the Federal Reserve Banks.

13. If the amount of real output demanded at each price level falls by $200, this might have been caused by: A. an increase in net exports. B. a worsening of business expectations. C. an increase in consumer wealth. D. a decrease in the personal income tax.

B. a worsening of business expectations.

Approximately how many commercial banks are now operating in the United States? A. about 7,300 B. about 6,800 C. about 8,700 D. about 6,300

B. about 6,800

30. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the Federal funds rate by one-half of a percentage point, it should: A. act to increase reserves by $50 billion. B. act to reduce reserves by $50 billion. C. pursue an expansionary monetary policy. D. buy bonds from banks and the public.

B. act to reduce reserves by $50 billion.

Near-monies: A. include all financial and real assets that can be easily converted into currency. B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1. C. are excluded from M2 because they are highly liquid. D. are defined as monetary balances that are immediately available, at zero cost, for household and business transactions.

B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.

37. If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A. selling government securities, raising the reserve ratio, lowering the discount rate, increasing reserves available through the term auction facility, and a budgetary surplus. B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit. C. buying government securities, raising the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary surplus. D. buying government securities, reducing the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary deficit.

B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit.

19. The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

15. 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.

B. make Canada's exports less expensive and its imports more expensive.

Between September 2007, and September 2009: A. the Fed oversaw the conversion of all thrifts into commercial banks. B. the FDIC closed more than 200 U.S. banks and shifted their deposits to other banks. C. the Fed increased capital requirements for larger financial institutions in an effort to reduce moral hazard. D. the FDIC paid out more than $500 billion to depositors who held money in failed banks.

B. the FDIC closed more than 200 U.S. banks and shifted their deposits to other banks

21. 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.

B. the amount by which equilibrium GDP falls short of the full-employment GDP.

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. the latter includes small-denominated time deposits, non-checkable savings accounts, money markets deposit accounts, and money market mutual fund balances.

15. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B. the price level is inflexible downward and a recession has occurred.

The "shadow banking system" refers to: A. the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred. B. the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending. C. the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008. D. mortgage loans made to homebuyers who are poor credit risks.

B. the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

11. Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left? A. a reduction in business taxes B. production bottlenecks occurring when producers near full plant capacity C. an increase in the price of imported resources D. deregulation of industry

C

5. 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. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

1. To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

21. Between 1985 and 2003 the: A. dollar appreciated in value relative to the yen. B. yen appreciated in value relative to the dollar. C. dollar price of yen fell. D. yen price of dollars rose.

B. yen appreciated in value relative to the dollar.

In essence, which of the following groups "creates" money?

Banks' loan officers when they grant loans

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of:

Being the bankers' bank

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.

Built-in stability means that:

B

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.

(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

14. Refer to the above data. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C

15. Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a: A. rightward shift of the aggregate demand curve along a fixed aggregate supply curve. B. rightward shift of the aggregate supply curve along a fixed aggregate demand curve. C. rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. D. leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

C

2. The aggregate demand curve is: A) vertical if full employment exists. 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

3. 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

4. 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

26. Refer to the above information and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by: A. $100. B. $90. C. $900. D. $1000.

C. $900.

12. Which of the following would reduce the money supply? A. Commercial banks use excess reserves to buy government bonds from the public. B. Commercial banks loan out excess reserves. C. Commercial banks sell government bonds to the public. D. A check clears from Bank A to Bank B.

C. Commercial banks sell government bonds to the public.

24. Which of the following actions by the Fed will increase commercial bank lending potential? A. Raising the reserve ratio. B. Increasing the Federal funds rate target. C. Expanding the amount of reserves available through the term auction facility. D. Selling bonds to commercial banks and the public.

C. Expanding the amount of reserves available through the term auction facility.

28. With a per unit tariff of PcPt, the total amount of tariff revenue collected on this product will be: A. PaPt times wy. B. PcPa times x. C. PcPt times wy. D. PcPt times z.

C. PcPt times wy.

18. Which of the following best describes the idea of a political business cycle? A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B. Fiscal policy will result in alternating budget deficits and surpluses. C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

When economist say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C. a monetary unit for measuring and comparing the relative values of goods.

8. It may be misleading to label a trade deficit as unfavorable or adverse because: A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.

C. a nation's consumers benefit from a trade deficit during the period it occurs.

28. The recessionary expenditure gap associated with the recession of 2007-2009 resulted from: A. the government's attempt to control hyperinflation. B. a major increase in personal and corporate taxes. C. a rapid decline in investment spending. D. a rapid increase in imports resulting from large tariff reductions.

C. a rapid decline in investment spending.

12. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C. a surplus of real output of $150 will occur.

In the financial industry,"securitization" refers to: A. increasing insurance protection on bank deposits. B. requiring greater down payments on home purchases to reduce mortgage default risk. C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities. D. increasing collateral requirements on loans.

C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities.

10. Banks create money when they: A. allow loans to mature. B. accept deposits of cash. C. buy government bonds from households. D. sell government bonds to households.

C. buy government bonds from households.

15. The impact of increasing, as opposed to constant, costs is to: A. intensify and prolong the comparative advantages that any nation may have initially. B. expand the limits of the terms of trade. C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage. D. cause nations to realize economies of scale in those products in which they specialize.

C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage.

1. 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. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

29. Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: A. the price of German bicycles to increase in the United States. B. employment to decrease in the German bicycle industry. C. employment to decrease in the U.S. bicycle industry. D. profits to rise in the U.S. bicycle industry.

C. employment to decrease in the U.S. bicycle industry.

49. (Consider This) During and immediately following the severe recession of 2007-2009, commercial bank reserves held on deposit in Federal Reserve banks: A. rose to a high of 50 percent of total checkable deposits held by banks. B. fell significantly as commercial banks withdrew reserves to pay off heavy debt obligations. C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves. D. increased significantly because the Fed increased the required reserve ratio.

C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves.

Purchasing common stock by writing a check best exemplifies money serving as a(n): A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.

C. medium of exchange.

26. The Fed directly sets: A. the prime interest rate but not the Federal funds rate. B. both the Federal funds rate and the prime interest rate. C. neither the Federal funds rate nor the prime interest rate. D. the discount rate and the prime interest rate.

C. neither the Federal funds rate nor the prime interest rate.

A checking account entry is money because it: A. is ensured by the Federal Deposit Insurance Corporation. B. has been declared as such by the Federal government. C. performs the functions of money. D. can be sold for currency.

C. performs the functions of money.

2. In international financial transactions, what are the only two things that individuals and firms can exchange? A. currency and real assets. B. services and manufactured goods. C. preexisting assets and currently produced goods and services. D. currency and currently produced goods and services.

C. preexisting assets and currently produced goods and services.

42. Between March 2001 and November 2002, the Fed reduced the Federal funds rate from 5 percent to just above 1 percent. The Fed's purpose was to: A. prevent rising inflation. B. reduce the public debt. C. promote recovery from recession. D. strengthen the international value of the dollar.

C. promote recovery from recession.

28. Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933? A. banks are more cautious lenders B. banks keep large amounts of excess reserves on hand C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems D. the President now has the authority to close banks whenever panics occur

C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

In define money as M1, economists exclude time deposits because: A. the intrinsic value of time deposits is nil. B. the purchasing power of time deposits is much less stable than that of checkable deposits and currency. C. they are not directly or immediately a medium of exchange. D. they are not recognized by the Federal government as legal tender.

C. they are not directly or immediately a medium of exchange.

41. Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed: A. will have to increase interest rates to keep the price level from falling. B. will have to reduce the money supply to keep the price level from rising. C. will have to increase the money supply to keep the price level from falling. D. can keep the price level stable without altering the money supply or interest rate.

C. will have to increase the money supply to keep the price level from falling.

Stabilizing a nation's price level and the purchasing power of its money can be achieved: A. only with fiscal policy. B. only with monetary policy. C. with both fiscal and monetary policy. D. with neither fiscal nor monetary policy.

C. with both fiscal and monetary policy

is aimed at reducing aggregate demand and thus achieving price stability.

Contractionary fiscal policy is so named because it:

C

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 contract real GDP.

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Control the supply of money in the economy

The Federal Reserve System performs many functions but its most important one is:

Controlling the money supply

The Federal backing for money in the United States comes from:

Controlling the money supply in order to keep the value of money relatively stable over time

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Controlling the supply of money.

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Council of Economic Advisers.

deficits during recessions and surpluses during periods of demand-pull inflation.

Countercyclical discretionary fiscal policy calls for:

3. The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A. shift the aggregate demand curve leftward. B. shift the aggregate supply curve leftward. C. decrease U.S. exports and increase U.S. imports. D. increase U.S. exports and decrease U.S. imports.

D

6. An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A. net export effect. B. wealth effect C. real-balances effect. D. multiplier effect.

D

7. Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand? A. $12 billion. B. $20 billion. C. $33.3 billion. D. $50 billion.

D

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A) net export effect. B) wealth effect. C) real-balances effect. D) multiplier effect.

D

In the above diagram, the most favorable shift of the aggregate supply curve for the economy would be from: A) AS1 to AS2 B) AS1 to AS3 C) AS2 to AS3 D) AS3 to AS2 .

D

24. Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions? A. 56 percent B. 71 percent C. 43 percent D. 29 percent

D. 29 percent

22. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: A. 7.5 percent. B. 1.39 percent. C. 2.5 percent. D. 3.9 percent.

D. 3.9 percent.

12. Which of the following statements is true regarding why the balance on the current account and the balance on the capital and financial account must always sum to zero? A. Any deficit or surplus in the current account automatically creates an offsetting entry in the capital and financial account. B. People can only trade one of two things with each other; currently produced goods and services or preexisting assets. C. If trading partners have an imbalance in their trade of currently produced goods and services, the only way to correct that imbalance is with a net transfer of assets from one party to the other. D. All of these are true statements.

D. All of these are true statements.

34. Which of the following best describes the cause-effect chain of an expansionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

31. 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. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

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

D. all of these

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. all of these reasons

30. Present consumption supported by large trade deficits may come at the expense of: A. permanent debt to foreign interests. B. permanent foreign ownership of formerly U.S. owned assets. C. large sacrifices of future consumption. D. all of these.

D. all of these.

1. Refer to the above diagrams. Other things equal, curve B will shift upward when: A. the level of GDP increases. B. the interest rate increases. C. curve A shifts to the left. D. curve A shifts to the right.

D. curve A shifts to the right.

6. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the: A. supply of bonds in the bond market will decline and the interest rate will rise. B. supply of bonds in the bond market will increase and the interest rate will decline. C. demand for bonds in the bond market will decline and the interest rate will rise. D. demand for bonds in the bond market will rise and the interest rate will fall.

D. demand for bonds in the bond market will rise and the interest rate will fall.

9. 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. increase spending and decrease taxes.

Collateralized default swaps: A. helped reduce the losses from the mortgage default crisis. B. involve exchanging high-risk mortgages for low-risk mortgage-backed securities. C. are loans to investors in mortgage-backed securities. D. insured holders of loan-backed securities in case they underlying loans were not repaid.

D. insured holders of loan-backed securities in case they underlying loans were not repaid.

Currency held in the vault of the 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. is not counted as part of the money supply.

19. If the world price of this product is $1, this nation will: A. export all of the product. B. import all of the product. C. import some of the product and produce some of the product domestically. D. neither export nor import the product.

D. neither export nor import the product.

Currency held within banks is part of: A. both the M1 and M2 definitions of the money supply. B. the M2 definition of the money supply only. C. the M1 definition of the money supply only. D. none of these definitions of the money supply.

D. none of these definitions of the money supply.

(Consider This) Credit card balances are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2

Time deposits of $100,000 or more are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2

26. Credit card balances are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2.

Coins held in commercial banks are: A. included in M1, but not in M2. B. included both in M1 and in M2. C. included in M2, but not in M1. D. not part of the nation's money supply.

D. not part of the nation's money supply.

21. 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. of all of these reasons.

TIAA-CREF, Teamster' Union and CalPERS, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds

24. TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds.

Smith Barney, Charles Schwab, and Merrill Lynch, are all primarily: A. investment banks. B. mutual fund companies. C. insurance companies. D. securities firms.

D. securities firms

27. In saying that the present system of floating exchange rates is managed we mean that: A. countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF. B. the value of any IMF member's currency can only vary 2 percent from its par value. C. IMF officials determine exchange rates on a day-to-day basis. D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

When banks bundled mortgage loans and sold the resulting mortgage-backed securities: A. they insulated the banking system from any risk associated with mortgage defaults. B. they greatly reduced the overall risk of mortgage defaults. C. buyers of these securities assumed all of the risk of mortgage defaults. D. they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-backed securities.

D. they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-backed securities.

28. Refer to the above diagram for the Federal funds market. If the Fed supplies $200 billion in reserves, the equilibrium prime interest rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

D. undeterminable with the information given.

If the price index rises from 200 to 250, the purchasing power values of the dollar: A. may either rise or fall. B. will rise by 25 percent. C. will fall by 25 percent. D. will fall by 20 percent.

D. will fall by 20 percent

During period of rapid inflation, money may cease t work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D.because the businesses will not want to accept it in transaction.

Checkable deposits are:

Debts of commercial banks and savings institutions

an increase in public investment

Which one of the following might offset a crowding-out effect of financing a large public debt?

If personal income taxes and business taxes increase, then this will:

Decrease aggregate demand and aggregate supply

The set of fiscal policies that would be most contractionary would be a(n):

Decrease in government spending and an increase in taxes

Given the expected rate of return on all possible investment opportunities in the economy, a(n):

Decrease in the real rate of interest will tend to increase the level of investment

Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate:

Demand to the right

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

Discretionary Fiscal Policy

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

Discretionary fiscal policy is so named because it:

C

Discretionary fiscal policy is so named because it: A) is undertaken at the option of the nation's central bank. B) occurs automatically as the nation's level of GDP changes. C) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. D) is invoked secretly by the Council of Economic Advisers.

deficits are incurred during recessions and surpluses during inflations.

Discretionary fiscal policy will stabilize the economy most when:

The consumption schedule shows the relationship of household consumption to the level of:

Disposable income

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift:

Downward both the consumption and saving schedules

A

Economist refer to the difference between the actual deficit and the full-employment deficit the: A) cyclical deficit. B) structural deficit. C) natural deficit. D) nonrecurring deficit.

B

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

A

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 macroeconomics because they explain rightward shifts in aggregate demand.

is designed to expand real GDP.

Expansionary fiscal policy is so named because it:

D

Expansionary fiscal policy is so named because it: A) involves an expansion of the nation's money supply. B) necessarily expands the size of government. C) is aimed at achieving greater price stability. D) is designed to expand real GDP.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

Federal funds rate.

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

Fiscal policy refers to the:

Which of the following is a true statement?

Fiscal policy swung from contractionary to expansionary in 2002.

Macroeconomic models help clarify important questions such as the following, except:

How will OPEC manipulate and maintain the price of crude oil in the world markets?

economy would become more stable.

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

assume that government is having a contractionary effect on the economy.

If government increases the size of its cyclically-adjusted surplus, we can:

C

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by: A) increasing government spending by $25 billion. B) increasing government spending by $80 billion. C) decreasing taxes by $25 billion. D) decreasing taxes by $100 billion.

decreasing taxes by $25 billion.

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

increasing government spending by $4 billion.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

B

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by: A) reducing government expenditures by $125 billion. B) reducing government expenditures by $20 billion. C) increasing taxes by $50 billion. D) increasing taxes by $250 billion.

reducing government expenditures by $20 billion.

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:

tax revenues would exceed government expenditures if full employment were achieved.

If the economy has a cyclically-adjusted budget surplus, this means that:

29

In 2009, about ____ percent of the U.S. public debt was held by people and institutions abroad.

43

In 2009, about ____ percent of the U.S. public debt was held by the Federal government and Federal Reserve.

about a third as large as the GDP.

In 2009, the U.S. Federal debt held by the public was:

$11.9 trillion.

In 2009, the U.S. public debt was about:

A

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should: A) increase tax rates and reduce government spending. B) discourage personal saving by reducing the interest rate on government bonds. C) increase government expenditures. D) encourage private investment by reducing corporate income taxes.

C

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should: A) encourage personal saving by increasing the interest rate on government bonds. B) decrease government expenditures. C) reduce tax rates and increase government spending. D) discourage private investment by increasing corporate income taxes.

increase tax rates and/or reduce government spending.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should:

reduce tax rates and/or increase government spending.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should:

D

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will: A) shift the AD curve to the right. B) increase the equilibrium GDP. C) not affect the AD curve. D) shift the AD curve to the left.

The shift of labor out of agriculture to industry in the United States has tended to:

Increase labor productivity

If Congress passed new laws significantly increasing the regulation of business, this action would tend to:

Increase per-unit production costs and shift the aggregate supply curve to the left

A commercial bank has no excess reserves until a depositor places $5000 in cash at the bank. The commercial bank then lends $4000 to a borrower. As a consequence of these transactions the size of the money supply has:

Increased by $4000

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

Which of the following is a measure of economic growth that is most useful for comparing living standards?

Increases in real GDP per capita

primarily by a combination of recession and expansionary fiscal policy.

Increases in the Federal budget deficit from 2007 to 2009 were caused:

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 (decrease) ID1?

Increasing operating costs for capital goods

An increase in the overall level of prices in an economy is called:

Inflation

If bond prices decrease, then the:

Interest rate increases

The aggregate demand curve shows the:

Inverse relationship between the price level and the quantity of real GDP purchased

Rapid and sustained economic growth of nations:

Is a relatively modern phenomenon

Gordon is a person who sells narcotics "on the street." This type of illegal activity:

Is excluded from GDP figures

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:

Is not subject to the timing problems of discretionary policy

An increase in personal income taxes would shift AD to the:

Left because C will decrease

A decrease in expected returns on investment will most likely shift the AD curve to the:

Left because Ig will decrease

"Near-monies" are included in:

M2 only.

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

MPS=MPC+1

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:

Marginal propensity to save is .25

To track the public debt over time and understand its significance to the economy, it is best:

Measured relative to the gross domestic product

Nominal gross domestic product:

Measures the value of final output produced within a nation in one year, using current prices

Money eliminates the need for a coincidence of wants in trading primarily through its role as a:

Medium of exchange

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

Medium of exchange

Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008?

Merrill Lynch

The most important among the Federal Reserve district banks in conducting monetary policy is the:

New York bank

The GDP deflator or price index equals:

Nominal GDP divided by real GDP

B

Other things equal, a decrease in the real interest rate will: A) expand investment and shift the AD curve to the left. B) expand investment and shift the AD curve to the right. C) reduce investment and shift the AD curve to the left. D) reduce investment and shift the AD curve to the right.

increase the public debt from $460 billion to $480 billion.

Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the above economy would:

C

Other things equal, appreciation of the dollar: A) increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B) increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C) decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D) decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

B

Other things equal, if the U.S. dollar were to depreciate, the: A) aggregate demand curve would remain fixed in place. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

A

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: A) aggregate demand curve would shift to the right. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

is financed by borrowing.

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

is thought to increase income inequality.

Payment of interest on the U.S. public debt:

Money is "created" when:

People receive loans from their banks

B

Per unit production cost is: A) real output divided by inputs. B) total input cost divided by units of output. C) units of output divided by total input cost. D) a determinant of aggregate demand.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

reducing national income and therefore tax revenues.

Recessions have contributed to the public debt by:

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?

Reductions in federal tax rates on personal and corporate income.

A

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP and actual GDP are each $400 billion, this economy will realize a: A) full-employment deficit of $20 billion. B) cyclical deficit of $20 billion. C) cyclical surplus of $20 billion. D) full-employment deficit of zero.

C

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is: A) $200 billion. B) $20 billion. C) $40 billion. D) $60 billion.

B

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the cyclical deficit is: A) $40 billion. B) $20 billion. C) zero. D) $60 billion.

D

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the full-employment budget deficit is: A) $40 billion. B) zero. C) $60 billion. D) $20 billion.

A

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the: A) actual budget deficit exceeds the full-employment budget deficit. B) actual budget deficit is less than the full-employment budget deficit. C) full-employment deficit exceeds the cyclical deficit. D) cyclical deficit exceeds the full-employment deficit.

B

Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance its budget by: A) increasing T by $40 billion. B) reducing G by $20 billion. C) reducing T by $20 billion. D) increasing T by $10 billion and reducing G by $20 billion.

D

Refer to the above diagram. Which tax system will generate the largest cyclical deficits? A) T4 B) T3 C) T2 D) T1

D

Refer to the above diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph a, which of the following might explain why GDP increases to Y rather than to Z? A) depreciation of the dollar. B) reduction in tariffs imposed by our trading partners. C) decrease in the saving schedule. D) crowding-out effect.

Cash held by a bank in its vault is a part of the bank's:

Reserves

Which would most likely shift the aggregate supply curve? A change in the prices of:

Resources

A major effect of the rise in the rate of productivity growth in the United States is a(n):

Rise in the growth of living standards

$460 billion.

Security: Amount: Treasury Bills $220 Corporate Bonds 140 Treasury Notes 80 Corporate stock 200 US savings bonds 60 treasury bonds 100 The public debt for the above economy is:

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system:

Serves as an automatic stabilizer for the economy

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:

Setting the Fed's monetary policy and directing the purchase and sale of government securities

large Federal budget deficits.

Since 2002, the United States has had:

The so-called wealth effect will result in households:

Spending more and saving less

The shape of the aggregate supply curve is determined by what happens to aggregate demand as real output expands.

false

There is an asset demand for money primarily because of which function of money?

Store of value

D

Suppose real GDP is X, as shown in graph (a). Appropriate government fiscal policy would be to: A) increase taxes. B) reduce government spending. C) reduce government spending and taxes by equal-sized amounts. D) reduce taxes or increase government spending.

D

Suppose real GDP is X, as shown in graph (a). If the economy's MPC is .75, X is $100 billion and full- employment real GDP Y is $140 billion, an appropriate fiscal policy would be to: A) reduce taxes by $100 billion. B) increase government expenditures by $100 billion. C) reduce taxes by $10 billion. D) increase government expenditures by $10 billion.

C

Suppose real GDP is X, as shown in graph (a). If the economy's MPC is .8, X is $200 billion and full- employment real GDP Y is $300 billion, an appropriate fiscal policy would be to reduce taxes by: A) $100 billion. B) $20 billion. C) $25 billion. D) $164 billion. Answer: C

D

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP. It could: A) reduce taxes by $160 billion. B) increase government spending by $80 billion. C) reduce taxes by $40 billion. D) increase government spending by $40 billion.

A

Suppose that in an economy with a MPC of .8 the government wanted to shift the aggregate demand curve leftward by $40 billion at each price level to remedy demand-pull inflation. It could: A) increase taxes by $10 billion. B) reduce government spending by $40 billion. C) reduce government spending by $5 billion. D) increase taxes by $20 billion.

D

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. All else being equal, if the price of each input increased from $4 to $6, productivity would: A) fall from 2 to 3. B) fall from .50 to .33. C) rise from 1 to 2. D) remain unchanged.

A

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Given an increase in input price from $4 to $6, we would expect the aggregate: A) supply curve to shift to the left. B) supply curve to shift to the right. C) demand curve to shift to the left. D) demand curve to shift to the right.

C

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per unit cost of production is: A) $.50. B) $1. C) $2. D) $5.

D

Suppose that the economy is in the midst of a recession. Which of the following policies would be consistent with active fiscal policy? A) a Congressional proposal to incur a Federal surplus to be used for the retirement of public debt B) a reduction in agricultural subsidies and veterans' benefits C) a postponement of a highway construction program D) a reduction in Federal tax rates on personal and corporate income

Reductions in Federal tax rates on personal and corporate income.

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?

decreased by $150 billion.

Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:

neutral fiscal policy.

Suppose the government cuts taxes to keep the economy's cyclically-adjusted budget in balance when the economy is expanding. The government is engaging in a(n):

expansionary fiscal policy.

Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n):

contractionary fiscal policy.

Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n):

A

Suppose the government purposely changes the economy's full-employment budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n): A) expansionary fiscal policy. B) contractionary fiscal policy. C) neutral fiscal policy. D) low-interest rate policy.

B

Suppose the government purposely changes the economy's full-employment budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n): A) expansionary fiscal policy. B) contractionary fiscal policy. C) neutral fiscal policy. D) high-interest rate policy.

increase government expenditures by $50 billion.

Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

reduce taxes by $80 billion.

Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should:

increase government expenditures by $40 billion.

Suppose the price level is fixed, the MPC is .8, the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should:

If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general:

Surplus and the price level will fall

stimulate aggregate demand and employment.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to:

implemented a $787 billion package of tax cuts and government expenditure increases.

The American Recovery and Reinvestment Act of 2009:

subtracting government tax revenues from government spending in a particular year.

The Federal budget deficit is found by:

crowding-out effect.

The Federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the:

consists of the historical accumulation of all past Federal deficits and surpluses.

The U.S. public debt:

cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2009.

The actual budget deficit of the Federal government in 2009 was about $1.4 trillion. On the basis of this information it:

D

The aggregate demand curve: A) is up sloping 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.

C

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 down sloping because real purchasing power increases as the price level falls.

budget surplus.

The amount by which Federal tax revenues exceed Federal government expenditures during a particular year is the:

budget deficit.

The amount by which government expenditures exceed revenues during a particular year is the:

interest on the debt as a percentage of the GDP.

The average tax rate required to service the public debt is roughly measured by:

Which of the following would most likely move the economy into a recession in the short term?

The central bank printing less money than was anticipated.

strongest when the economy is at full employment.

The crowding-out effect is:

government spending increases at the expense of private investment.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The crowding-out effect of expansionary fiscal policy suggests that:

A

The crowding-out effect of expansionary fiscal policy suggests that: A) government spending is increasing at the expense of private investment. B) imports are replacing domestic production. C) private investment is increasing at the expense of government spending. D) saving is increasing at the expense of investment.

B

The crowding-out effect of expansionary fiscal policy suggests that: A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C) it is very difficult to have excessive aggregate spending in the U.S. economy. D) consumer and investment spending always vary inversely.

government borrowing to finance the public debt increases the real interest rate and reduces private investment.

The crowding-out effect suggests that:

rose to -7.3 percent of potential GDP in 2009.

The cyclically-adjusted budget deficit for the United States:

the size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment.

The cyclically-adjusted budget refers to:

what the size of the Federal budget deficit or surplus would be if the economy was at full employment.

The cyclically-adjusted budget tells us:

an increase in saving.

The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

the crowding-out effect.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

A public debt which is owed to foreigners can be burdensome because:

The payment of interest reduces the volume of goods and services available for domestic uses

politicians will manipulate the economy to enhance their chances of being reelected.

The political business cycle refers to the possibility that:

larger than the portion held by Federal Agencies and the Federal Reserve.

The portion of the public debt held outside Federal agencies and the Federal Reserve is:

If the purchasing power of the dollar is falling, then it follows that:

The price index is rising

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

The public debt is held as:

An antigrowth view would be that there may be a significant tradeoff between productivity and:

The quality of life

D

The tax multiplier is: A) 1/MPS B) 1/MPC C) MPS/MPC D) one less than the expenditure multiplier

Which of the following statements best describes the twelve Federal Reserve Banks?

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

Which of the following statements best describes the 12 Federal Reserve Banks?

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.

43 percent.

What percentage of the U.S. public debt is held by Federal agencies and the Federal Reserve?

the cyclically-adjusted budget has neither a deficit nor a surplus.

When current government expenditures equal current tax revenues and the economy is achieving full employment:

B

When current government expenditures exceed current tax revenues and the economy is achieving full employment: A) thefull-employment budget has neither a deficit nor a surplus. B) the full-employment budget has a deficit. C) fiscal policy is contractionary. D) nominal GDP and real GDP are equal.

the cyclically-adjusted budget has a deficit.

When current government expenditures exceed current tax revenues and the economy is achieving full employment:

C

When current tax revenues exceed current government expenditures and the economy is achieving full employment: A) thefull-employment budget has neither a deficit nor a surplus. B) the full-employment budget may have either a deficit or a surplus. C) the full-employment budget has a surplus. D) nominal GDP and real GDP are equal.

the cyclically-adjusted budget has a surplus.

When current tax revenues exceed current government expenditures and the economy is achieving full employment:

the actual and the cyclically-adjusted budgets will be equal.

When the economy is at full employment:

D

When the economy is at full employment: A) one cannot generalize in comparing the actual and the full-employment budgets. B) the full-employment budget will show a surplus and the actual budget will show a deficit. C) the actual budget will show a surplus and the full-employment budget will show a deficit. D) the actual and the full-employment budgets will be equal.

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Which of the following best describes the built-in stabilizers as they function in the United States?

D

Which of the following best describes the built-in stabilizers as they function in the United States? A) The size of the balanced-budget multiplier varies inversely with the level of GDP. B) Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C) Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D) Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Which of the following best describes the idea of a political business cycle?

Bursting of the Dot.Com stock market bubble.

Which of the following did not contribute directly to the Great Recession?

An increase in government spending on infrastructure that increases private sector productivity.

Which of the following fiscal policy actions is most likely to increase aggregate supply?

Fiscal policy swung from contractionary to expansionary in 2002.

Which of the following is a true statement?

Crowding-out of private investment

Which of the following is considered a legitimate concern of a large public debt?

demand-pull inflation

Which of the following is not a significant contributor to the U.S. public debt?

Bankruptcy of the Federal government

Which of the following is not considered a legitimate concern of a large public debt?

construction of highways

Which of the following is the best example of public investment?

a $10 billion increase in government spending

Which of the following represents the most expansionary fiscal policy?

B

Which of the following represents the most expansionary fiscal policy? A) a $10 billion tax cut B) a $10 billion increase in government spending C) a $10 billion tax increase D) a $10 billion decrease in government spending.

Built-in stability only partially offsets fluctuations in economic activity.

Which of the following statements is correct?

A

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 recession.

Year: Actual Budget: Adjusted budget: 1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the above data for a fictional economy. The changes in the budget conditions between 1998 and 1999 best reflect:

an expansionary fiscal policy.

Year: Actual Budget: Adjusted budget: 1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the above data for a fictional economy. The changes in the budget conditions between 1999 and 2000 best reflect:

a recession.

Year: Actual Budget: Adjusted budget: 1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the above table for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect:

an expansion of real GDP and an automatic increase in tax revenues.

Year: Actual Budget: Adjusted budget: 1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the above table for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect:

contractionary fiscal policy.

Year: Actual Budget: Adjusted budget: 1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the above table for a fictional economy. The changes in the budget conditions between 2001 and 2002 best reflect a(n):

Which one of the following would not shift the aggregate demand curve?

a change in the price level

Which of the following will not tend to shift the consumption schedule upward? A)a currently small stock of durable goods in possession of consumers B)the expectation of a future decline in the consumer price index C) a currently low level of household debt D) the expectation of future shortages of essential consumer goods

a currently low level of household dept

An appropriate fiscal policy for a severe recession is:

a decrease in tax rates.

In the diagram, a shift from AS1 to AS2 might be caused by:

a decrease in the prices of domestic resources.

The real-balances effect indicates that:

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

When economists say that money serves as a medium of exchange, they mean that it is:

a means of payment

When economists say that money serves as a unit of account, they mean that it is:

a monetary unit for measuring and comparing the relative values of goods.

When economists say that money serves as a store of value, they mean that it is:

a way to keep wealth in a readily spendable form for future use.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

aggregate demand curve would shift to the right.

An inflationary expenditure gap is the amount by which:

aggregate expenditures exceed the full-employment level of GDP

Near-monies:

are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.

Small-denominated time deposits, by definition:

are less than $100,000.

Menu costs:

are the costs to firms of changing prices and communicating them to customers.

Critics of economic growth:

argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth.

A commercial bank's reserves are:

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

During periods of rapid inflation, money may cease to work as a medium of exchange:

because people and businesses will not want to accept it in transactions.

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed.

In the financial industry, "securitization" refers to:

bundling groups of loans, bonds, mortgages, and other financial debts into new securities.

The investment demand curve will shift to the right as the result of:

business becoming more optimistic about future business conditions

The money supply is backed:

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

Wells Fargo, J.P. Morgan Chase, and Citibank are all primarily:

commercial banks.

Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily:

commercial banks.

The consumption schedule (function) relates:

consumption to the level of disposable income

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation.

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:

cyclical unemployment rate is 4 percent.

If APC=.6 and MPC=.7, the immediate impact of an increase in personal taxes of $20 will be to:

decrease consumption by $14.

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will:

decrease.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the:

determinants of aggregate demand.

Excess reserves refer to the:

difference between actual reserves and required reserves.

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases efffects

If Congress adjusted the U.S. tax system so that the MPC was reduced, the:

economy would become more stable.

The economy's long-run AS curve assumes that wages and other resource prices:

eventually rise and fall to match upward or downward changes in the price level.

The price level in the United States is more flexible downward than upward.

false

The real-balances effect indicates that inflation makes the public feel wealthier and they therefore spend more out of their current incomes.

false

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as:

frictionally unemployed.

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:

frictionally unemployed.

Part-time workers who want full-time work are counted as:

fully employed and therefore the official unemployment rate may understate the level of unemployment.

The American Recovery and Reinvestment Act of 2009:

implemented a $787 billion package of tax cuts and government expenditure increases.

Coins in people's pockets and purses are:

included both in M1 and in M2.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:

increase U.S. exports and decrease U.S. imports.

The foreign purchases effect suggests that an increase in the U.S. price level relative to the other countries will:

increase U.S. imports and decrease U.S. exports

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand.

The M2 money supply includes:

individual shares in money market mutual funds.

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible.

New York Life, Prudential, and Hartford are all primarily:

insurance companies.

Discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

The economy's long-run aggregate supply curve:

is vertical.

Answer the question on the basis of the following list of assets: 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults Refer to the above list. The assets that are not included in either M1 or M2 are:

items 1, 5, 9, and 10.

Answer the question on the basis of the following list of assets: 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults Refer to the above list. The M2 definition of money comprises:

items 2, 3, 4, 6, 7, and 8.

Since 2002, the United States has had:

large federal budget deficits.

The numerical value of the multiplier will be smaller the:

larger the slope of the saving schedule

A decline in investment will shift the AD curve to the:

left by a multiple of the change in investment.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

multiplier effect.

Currency held in the vault of First National Bank is:

not counted as part of the money supply

Currency held in the vault of First National Bank is:

not counted as part of the money supply.

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

not in the labor force.

(Consider This) Credits cards are:

not money, officially defined

Coins held in commercial banks are:

not part of the nation's money supply.

Demand-pull inflation:

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

Banks lost money during the mortgage default crisis because:

of all of these reasons.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by:

panel (A) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by:

panel (B) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by:

panel (B) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment, and price stability are depicted by:

panel (C) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by:

panel (C) only.

Inflation means that:

prices on average are rising, although some particular prices may be falling.

Increases in the federal budget deficit from 2007 to 2009 were caused:

primarily by a combination of recession and expansionary fiscal policy.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in:

productivity.

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. All else being equal, if the price of each input increased from $4 to $6, productivity would:

remain unchanged.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective.

An increase in net exports will shift the AD curve to the:

right by a multiple of the change in investment.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level.

Graphically, demand-pull inflation os shown as:

rightward shift of the AD curve along an up sloping AS curve

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

The saving schedule is drawn of the assumption that as income increases:

savings will increase absolutely and as a percentage of income

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as:

securities firms.

Smith Barney, Charles Schwab, and Merrill Lynch are all primarily:

securities firms.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. Given an increase in input price from $4 to $6, we would expect the aggregate:

supply curve to shift to the left.

The aggregate demand curve:

shows the amount of real output that will be purchased at each possible price level.

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level.

The aggregate supply curve (short run):

slopes upward and to the right.

(Last Word) Plastic cards that contain computer chips that store account balances are known as:

smart cards.

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with:

structural unemployment.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

structural unemployment.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate:

supply curve would shift to the left.

The unemployment rate of:

teenagers is much higher than that of adults.

(Last Word) Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933?

the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

The equilibrium price level and level of real output occur where:

the aggregate demand and supply curves intersect.

Refer to the diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant:

the aggregate supply curve would have to shift rightward.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:

the increase in productivity.

(Consider This) The ratchet effect is the tendency of:

the price level to increase but not to decrease.

The investment demand curve portrays an inverse relationship between

the real investment rate and investment

To say that coins are "token money" means that:

their face value is greater than their intrinsic value.