David Simon Econ 1 Macro Exam 3 and Final Questions
47) If the CPI declines from 200 to 190, prices have declined by a) 5% b) 10% c) 19% d) 20% e) 200%
a) 5%
20) Suppose the civilian population equals 150,000; there are 72,500 employed persons and 10,000 unemployed persons. How many people are not in the labor force? a) 67,500 b) 63,500 c) 77,500 d) 10,000 e) None of the above
a) 67,500
74. Which statement is true about inflationary gaps and deflationary gaps? a. They can both be eliminated by raising G. b. They can both be eliminated by lowering G. c. They can both be eliminated by raising taxes. d. They can both be eliminated by lowering taxes. e. None is true
e. None is true
103. Bank deposit creation is limited by a. reserve requirements. b. the interest rate. c. whether a bank is nationally or state chartered. d. whether a bank is in a large city or rural area.
A. Reserve requirements
104. The _________ demand for money is most sensitive to interest rate changes. a. transactions b. precautionary c. speculative d. inflationary
C. Speculative
105. John Maynard Keynes thought that when interest rates fell to very low levels people would a. keep their money in the bank. b. lend out their money. c. buy bonds. d. hold their money.
D. Hold their money
24) If we subtract the number of people not in the labor force from the civilian population, we get the number of people in the a) Ranks of discouraged workers b) Ranks of the employed c) Civilian labor force d) Ranks of the unemployed
a) Ranks of discouraged workers
30) The base year is the year a) That serves as a reference point or benchmark b) In which prices are highest c) In which prices are lowest d) In which prices are unstable
a) That serves as a reference point or benchmark
21) "Full employment" is said to exist when the unemployment rate equals: a) The natural unemployment rate b) The structural unemployment rate c) The cyclical unemployment rate d) Zero
a) The natural unemployment rate
28) True or false: The cyclical unemployment rate can never be negative a) True b) False
a) True
38) Demand-pull inflation is often summed up as: a) excessive demand caused by too much dollars chasing too few goods b) the wage-price spiral c) profit-push inflation d) supply-side cost shock inflation
a) excessive demand caused by too much dollars chasing too few goods
4) which order is correct? a) recession, recovery, prosperity b) prosperity, recovery, recession c) recession, prosperity, recovery d) recovery, recession, prosperity
a) recession, recovery, prosperity
8) The GDP gap is found by a) subtracting actual GDP from potential GDP b) subtracting potential GDP from actual GDP c) adding actual GDP and potential GDP d) none of the above
a) subtracting actual GDP from potential GDP
6) Joseph Schumpeter is most closely associated with the a) theory of innovations b) psychological theory c) inventory cycle theory d) monetary theory
a) theory of innovations
145. Consider the following data on country X nominal GNP= $64,000,000; real GNP= $48,000,000; population = 4,000; labor force = 1,600. Per-capita read GNP in country X is: a. $12,000 b. $16,000 c. $30,000 d. $40,000
a. $12,000
160. Which of the following statements is false? a. If a country has an absolute advantage in the production of two goods in a two-good world, it may still benefit by specialization and trading. b. A country has a comparative advantage in the production of a good when it can produce the good at lower opportunity cost than another country. c. It is possible through specialization and trade for a country's inhabitants to consume at a level beyond its production possibilities frontier. d. a and b e. none of the above
a. If a country has an absolute advantage in the production of two goods in a two-good world, it may still benefit by specialization
149. Which scenario best illustrates the vicious circle of poverty? a. Incomes are low, thus saving is low; because saving is low, investment is low; because investment is low, income is low. b. Income are low, thus investment is low; because investment is low, interest rates are high; because interest rates are high, people can't buy homes; without homes, people are not satisfied enough to work. c. Agricultural incomes are low when the weather is bad; the weather is bad in certain parts of the world; nothing can change the weather, so agricultural incomes will continue to be low. d. If you can't spend, you can't buy; if you can't buy, you can't spend.
a. Incomes are low, thus saving is low; because saving is low, investment is low; because investment is low, income is low.
135. 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.
107. The crude quantity theory of money assumes that a. V and Q remain constant. b. V and Q vary. c. V is constant and Q varies. d. Q is constant and v varies.
a. V and Q remain constant.
81. If the MPC were .75, what change in government spending would be required to cause the equilibrium level of GDP to fall by 100? a. a decrease of 25. b. a decrease of 50. c. a decrease of 75. d. a decrease of 100. e. a decrease of 125.
a. a decrease of 25.
83. If the economy dips into a recession a. automatic stabilizers will cause tax receipts to fall and transfer payments to rise. b. automatic stabilizers will cause tax receipts to rise and transfer payments to fall. c. discretionary fiscal policy will generate increased transfer payments and lower tax receipts. d. discretionary fiscal policy will reduce government outlays and increase tax receipts. e. nothing will happen to the federal budget unless the president and Congress take specific corrective action.
a. automatic stabilizers will cause tax receipts to fall and transfer payments to rise.
90. The "crowding-out effect" 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. consumption is increasing at the expense of investment.
a. government spending is increasing at the expense of private investment.
111. Money performs its job as a standard of deferred payment very well a. in the short run. b. in the long run. c. in both the short and long run. d. in neither the short run nor the long run.
a. in the short run.
53. According to the classical economists, if the amount of money people are planning to invest is greater than the amount that people want to save, a. interest rates will rise and savings will rise. b. interest rates will fall and savings will fall. c. interest rates will fall and savings will rise. d. interest rates will rise and savings will fall.
a. interest rates will rise and savings will rise.
108. The transaction demand for money is most closely related to its use as a a. medium of exchange. b. standard of value. c. measure of value. d. store of value. e. standard of deferred payment.
a. medium of exchange.
117. The classical quantity theory of money states that a. money is a medium of exchange necessary for the efficient functioning of the economy. b. increases in the stock of money result in greater increases in the price level. c. decreases in the stock of money increase the price level. d. increases in the stock of money result in proportionate increases in the price level.
a. money is a medium of exchange necessary for the efficient functioning of the economy.
58. According to the classicals our economy can produce beyond the full employment output a. only in the short run. b. only in the long run. c. in both the short run and the long run. d. in neither the short run nor the long run.
a. only in the short run.
96. As the interest rate declines the amount of money the public wishes to hold a. rises. b. falls. c. stays the same.
a. rises.
130. During the course of a bad recession the Fed would probably be doing each of the following except: a. selling securities on the open market. b. lowering interest rates. c. lowering reserve requirements. d. lowering the discount rate.
a. selling securities on the open market.
85. During an inflation republicans would be most in favor of a. spending cuts. b. spending increases. c. tax cuts. d. tax increases.
a. spending cuts.
151. "Fungibility" means: a. substitutable b. flowing c. elastic d. efficient e. none of the above
a. substitutable
102. Money is created when someone a. takes out a bank loan. b. pays back a bank loan. c. spends money. d. saves money.
a. takes out a bank loan.
132. The most powerful (but seldom used) tool at the Federal Reserve's disposal is: a. the ability to set reserve requirements. b. the discount rate. c. open-market operations. d. margin requirements on stock purchases.
a. the ability to set reserve requirements.
69. Fiscal policy deals with each of the following except a. the money supply. b. government spending. c. taxation. d. the federal budget.
a. the money supply.
124. Open market operations are a. they buying and selling of United States government securities by the Fed. b. borrowing by banks from the Fed. c. the selling of United states government securities by the United States Treasury, d. raising or lowering reserve requirements by the Fed.
a. they buying and selling of United States government securities by the Fed.
120. The average number of times each dollar is used per year to buy goods and services in the economy is called the a. velocity of circulation of money. b. price level. c. income level. d. marginal respending rate. e. transactions demand.
a. velocity of circulation of money.
48. Say's law a. was a basic pillar of classical economics. b. was a basic pillar of keynesian economics. c. was formulated during the Great Depression. d. proves that we can never have full employment.
a. was a basic pillar of classical economics.
88. As the MPC rises, the multiplier a. will rise. b. will fall. c. will stay the same. d. may rise, fall, or stay the same.
a. will rise.
37) An example of disinflation would be when the annual inflation rate went from: a) 4% to 0% b) 8% to 4% c) 4% to 8% d) 2% to -2%
b) 8% to 4%
25) If a person is waiting to be called back to a job from which she has been laid off, how is she classified? a) As an employed person b) As an unemployed person c) As not in the labor force d) None of the above
b) As an unemployed person
12) A computerized job bank would be most effective in reducing ______ unemployment a) seasonal b) frictional c) cyclical d) structural
b) frictional
46) The purchasing power of a dollar will rise: a) if nominal interest rates rise b) if the price level decreases c) if the price level increases d) if real interest rates fall
b) if the price level decreases
14) when we are at full employment a) the unemployment rate is 0% b) the cyclical unemployment rate is 0% c) the structural unemployment rate is 0% d) the frictional unemployment rate is 0% e) none of the above
b) the cyclical unemployment rate is 0%
10) If the number of unemployed stays the same and the number of people in the labor force rises, a) the unemployment rate will rise b) the unemployment rate will fall c) the unemployment rate will stay the same d) there is not enough information to determine what will happen to the unemployment rate
b) the unemployment rate will fall
73. If full employment GDP is $500 billion greater than equilibrium GDP and the multiplier is 5, there is a deflationary gap a. of $50 billion. b. $100 billion. c. of $200 billion. d. of $500 billion. e. that is impossible to find.
b. $100 billion.
163. In Exhibit D, China's opportunity cost of producing 1 unit of cheese is: a. 1/4 unit of wine b. 1/3 unit of wine c. 3 units of wine d. 1/6 units of wine e. 18 units of wine
b. 1/3 unit of wine
98. All large financial institutions have to hold a reserve of almost _______ percent of their demand deposits. a. 2 b. 10 c. 12 d. 20 e. 100
b. 10
158. In Exhibit C, suppose the Nigeria produces 80X and 10Y in the no specialization - no trade (NS-NT) case, and Ethiopia produced 20X and 40Y. In the specialization-trade (S-T) case, the two countries agree to trade 40X for 20Y. Assuming that each country specializes in the production of the good in which it has a comparative advantage, Nigeria can consume ____ more units of good ____ in the S-T case than in the NS-NT. Ethiopia can consume ___ more units of good ____ in the S-T case than in the NS-NT case. a. 20; X; 10; Y b. 20; Y; 20; X c. 10; X; 20; Y d. l0; Y; 20; X
b. 20; Y; 20; X
121. If most bankers could do what they wanted, they would probably hold reserves of about a. 0% b. 3-4% c. 7-8% d. 10-12% e. 22-25%
b. 3-4%
165. Assume that by devoting all of its resources to the production of X, Cameroon can produce 40 units of X. By devoting all of its resources to Y, Cameroon can produce 60Y. Comparable figures for Mongolia are 60X and 40Y. We can conclude that: a. the terms of trade will be 3X equals 1Y. b. Cameroon should specialize in Y and Mongolia in X. c. Cameroon should specialize in X and Mongolia in Y. d. there is no basis for mutually beneficial specialization and trade.
b. Cameroon should specialize in Y and Mongolia in X.
79. Which of the following is an example of crowding out? a. Federal government spending causes changes in state and local government spending. b. Government spending reduces private spending. c. Tax changes perceived as temporary are largely ignored. d. Government spending causes the price level to rise.
b. Government spending reduces private spending.
49. Which question did John Maynard Keynes pose for the classical economists? a. What if their policies led to inflation? b. What if savings and investment were not equal? c. What if government intervention did not cure a recession? d. None of the above is correct.
b. What if savings and investment were not equal?
161. The ability to produce a good at a lower opportunity cost than others is called: a. a complementary advantage b. a comparative advantage c. a differential advantage d. an indigenous advantage e. an absolute advantage
b. a comparative advantage
179. A quota is: a. a tax on an imported good b. a legal limit on the amount of a good that may be imported c. a subsidy to domestic producers of a good whose substitute is imported d. all of the above
b. a legal limit on the amount of a good that may be imported
97. According to the concept of the liquidity trap, a. at very low interest rates people would put their money in the bank. b. at very low interest rates people would simply hold their money. c. at very high interest rates people would simply hold their money. d. people will lend out their money no matter what the interest rate happens to be.
b. at very low interest rates people would simply hold their money.
110. The precautionary demand for money arise a. because people feel relatively certain what the future will bring. b. because individuals are uncertain about the future. c. when nominal income exceeds potential income. d. as important exceptions to the Keynesian model. e. because the transaction demand for money is never adequate to absorb the money supply.
b. because individuals are uncertain about the future.
178. A voluntary export restraint is an agreement: a. between government and a particular producer that agrees to limit its exports and, in return, the government will subsidize the producer b. between two countries in which the exporting country agrees to limit its exports to the importing country c. between two countries in which both countries agree to impose tariffs on the other's products d. a and c e. none of the above
b. between two countries in which the exporting country agrees to limit its exports to the importing country
123. The most important policy weapon of the Fed is a. changing the discount rate. b. changing the reserve requirements. c. open market operations. d. moral suasion.
b. changing the reserve requirements.
66. The Keynesian point of view suggests that a. supply creates its own demand. b. demand creates its own supply. c. the market is always at equilibrium. d. full employment is the natural result of market forces. e. wage and price controls can halt deflationary pressures.
b. demand creates its own supply.
133. Bank panics were the result of: a. banks holding 100 percent of their deposits on reserve. b. depositors attempting to withdraw more deposits than the banks held in reserve. c. banks hoarding greenbacks during the Civil War. d. the United States going off the gold standard in 1933. e. money circulating too slowly.
b. depositors attempting to withdraw more deposits than the banks held in reserve.
155. In exhibit C, Nigeria has an absolute advantage in the production of___ and Ethiopia has an absolute advantage in the production of___ a. both goods; neither good b. good X; good Y c. good Y; good X d. neither good; both goods
b. good X; good Y
174. "New industries need to be protected or they won't have the opportunity to grow up." This statement is consistent with the _____ for trade restrictions. a. national defense argument b. infant-industry argument c. the anti-dumping argument d. the tariff argument e. none of the above
b. infant-industry argument
61. If aggregate demand increases and, as a result, the price level increases but equilibrium real GDP and employment remain unchanged, we can assume that the aggregate demand curve: a. intersects the upward-sloping segment of the aggregate supply curve. b. intersects the vertical segment of the aggregate supply curve. c. intersects the horizontal segment of the aggregate supply curve. d. is horizontal.
b. intersects the vertical segment of the aggregate supply curve.
114. In the classical model, the velocity of circulation of money: a. increases when the inflation rate increases. b. is a constant. c. increases when interest rates rise. d. decreases when interest rates rise. e. increases as nominal GDP increases.
b. is a constant.
143. An increase in the money supply will tend to: a. lower interest rates and lower the equilibrium GDP. b. lower interest rates and increase the equilibrium GDP. c. increase interest rates and increase the equilibrium GDP. d. increase interest rates and lower the equilibrium GDP. e. do none of the above.
b. lower interest rates and increase the equilibrium GDP.
101. Banking began in a. biblical times. b. medieval times. c. the 19th century. d. the 20th century.
b. medieval times.
119. When inflation occurs, a. money gains in value. b. money loses value. c. the value of money is unaffected. d. the value of demand deposits falls but the value of currency is unaffected. e. inflation has nothing to do with the value of money.
b. money loses value.
146. Which of the following concepts do economists think is the most useful measurement of how much better or worse off the "average" person is in one period compared to another? a. real economic growth b. per-capita real economic growth c. an increase in the production possibilities frontier (PPF) d. gross national product (GNP)
b. per-capita real economic growth
75. During times of inflation we want to: a. raise taxes and run budget deficits. b. raise taxes and run budget surpluses. c. lower taxes and run budget surpluses. d. lower taxes and run budget deficits.
b. raise taxes and run budget surpluses.
51. At equilibrium GDP a. savings = investment, but aggregate demand does not equal aggregate supply. b. savings = investment and aggregate demand = aggregate supply. c. savings does not equal investment and aggregate demand does not equal aggregate supply. d. savings does not equal investment, but aggregate demand = aggregate supply.
b. savings = investment and aggregate demand = aggregate supply.
128. The Board of Governors of the Federal Reserve does each of the following except a. sit on the Federal Open market Committee. b. serve on the Board at the pleasure of the President, who can make individual governors resign at any time. c. carry out monetary policy. d. raise and lower reserve requirements.
b. serve on the Board at the pleasure of the President, who can make individual governors resign at any time.
50. Our economy is always tending towards full employment according to a. John Maynard Keynes. b. the classical economists. c. both Keynes and the classicals. d. neither Keynes nor the classicals.
b. the classical economists.
87. The multiplier effect occurs because a. when retained national income rises, the MPC increases, prompting further increases in income. b. the new income generated by an increase in aggregate demand will be spent, each time becoming new income again. c. the level of national income must be multiplied by the average propensity to consume to find total consumption spending. d. what business firms view as spending is viewed by household s as income, so that new investment automatically becomes new income.
b. the new income generated by an increase in aggregate demand will be spent, each time becoming new income again.
95. People tend to hold more money as a. the price level rises and credit availability rises. b. the price level rises and credit availability falls. c. the price level falls and credit availability falls. d. the price level falls and credit availability rises.
b. the price level rises and credit availability falls.
162. If there is no comparative advantage in the production of either of the two goods produced by countries 1 and 2, then: a. the benefits resulting from trade between the two countries are increased b. there are no gains from specialization and trade between the two countries c. one country must be more productive in producing all goods than the other d. each country should specialize in the production of a particular good e. none of the above
b. there are no gains from specialization and trade between the two countries
150. The vicious circle of poverty refers to the idea that poor countries are poor because; a. the government doesn't collect enough taxes to provide tax benefits to poor persons b. they cant' save and invest, but they can't save and invest because they are poor c. they produce goods that are sold to more developed countries who pay such low prices that the poor countries can't develop new products that can be sold at higher prices d. the more developed countries find it advantageous to keep them poor so that the more developed countries can prevent the less developed countries (LDCs) from effectively competing with them e. c and d
b. they cant' save and invest, but they can't save and invest because they are poor
19) If a person did at least one hour of work as a paid employee during the past month, how is she classified? a) As an unemployed person b) As not in the labor force c) As an employed person d) None of these
c) As an employed person
42) One measure of the inflation rate is the a) GDP minus the real GDP in a year b) Percentage change in the real GDP of adjacent years c) Percentage change in the CPI of adjacent years d) Sum of the CPIs of adjacent years
c) Percentage change in the CPI of adjacent years
22) In many large retail stores, price markdowns are now determined by computer. The "middle manager" who used to make these decisions personally became ________ unemployed. a) Cyclically b) Naturally c) Structurally d) Frictionally
c) Structurally
29) True or false: The sum of the unemployment rate and the employment rate always equals 100%. c) True d) False
c) True
7) The sun spot theory of business cycle is associated with which economist? a) Joseph Schumpeter b) J.M. Keynes c) William Stanley Jevons d) Milton Friedman e) Thorstein Veblen
c) William Stanley Jevons
18) Is it possible for the economy to be at full employment and still have some people who are unemployed? a) Yes, since full employment equals the sum of the cyclical unemployment rate and the natural unemployment rate, and there is always some cyclical unemployment. b) Yes, since full employment exists if the economy is operating at the frictional unemployment rate and there is always some frictional unemployment. c) Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment. d) No, full employment means that no one is unemployed
c) Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment.
34) Inflation is: a) a rise in the price of every good and service b) a rise of exactly a specified percentage in the price of every good or service c) a general rise in the price level d) a general rise in prices of at least 10% a year
c) a general rise in the price level
11) David Simon quit his job as an economics instructor at Laney College, spent two weeks in Hawaii, and is now looking for (and expects to soon find) another job. He is ____ unemployed. a) psychologically b) structurally c) frictionally d) cyclically
c) frictionally
40) A wage-price spiral is the result of: a) lower wages and higher prices b) higher wages and lower prices c) higher wages and higher prices d) lower wages and lower prices
c) higher wages and higher prices
13) If cyclical unemployment is 4%, the overall unemployment rate a) is 4% b) is more than 4% c) is 9% d) is 0% e) cannot be determined
c) is 9%
16) If the cyclical unemployment rate is negative, then the ____________. a) Structural unemployment rate is less than the frictional unemployment rate. b) Structural unemployment rate is greater than the frictional unemployment rate. c) natural unemployment rate is greater than the actual unemployment rate in the economy. d) natural unemployment rate is less than the actual unemployment rate in the economy.
c) natural unemployment rate is greater than the actual unemployment rate in the economy.
45) Inflation means that: a) all prices are rising, but at different rates. b) all prices are rising and at the same rate. c) prices in the aggregate are rising, although some particular prices may be falling. d) real incomes are rising.
c) prices in the aggregate are rising, although some particular prices may be falling.
9) Among the following cases, which one would be considered to be unemployed? Someone who: a) worked three days in the last month but is now out of work b) is ready, willing, and able to work, but gave up looking for work three months ago c) reported to the state employment office last week but is not very enthusiastic about finding a job
c) reported to the state employment office last week but is not very enthusiastic about finding a job
44) Phillips' curve explains the trade-off between: a) wage and price inflation b) the unemployment rate and the rate of change in wages c) the unemployment rate and the rate of inflation d) output and prices changes
c) the unemployment rate and the rate of inflation
2) The standard definition of "recession" is: a) a period of negative inflation b) the lowest point on a business cycle c) two or more consecutive quarters of falling real GDP d) a period of a positive frictional unemployment rate
c) two or more consecutive quarters of falling real GDP
129. The Federal Open Market Committee has _____ members. a. 7 b. 10 c. 12 d. 14 e. 17
c. 12
148. Using the rule of 72, how many years will it take a country with a 4 percent growth rate per year to double in size? a. 10 years b. 12 years c. 18 years d. 24 years
c. 18 years
154. In exhibit C, the opportunity cost of one unit of Y for Nigeria is ___ whereas the opportunity cost of one unit of Y for Ethiopia is _____ a. 3X; 3X b. 10X; 2x c. 4X; 1X d. 5X; 1X e. none of the above
c. 4X; 1X
93. If we ran a budget deficit of $60 billion and a full-employment balanced budget, then the unemployment rate would be a. 5% b. 6% c. 7% d. 8% e. impossible to determine.
c. 7%
136. The most powerful individual in the Federal Reserve System is the: a. senior member of the Federal Open Market Committee. b. Superintendent of the Board of Governors. c. Chairman of the Federal Reserve Board. d. New York District Bank President.
c. Chairman of the Federal Reserve Board.
164. From Exhibit D, which of the following statements is NOT correct? a. Cameroon has a comparative advantage in wine production b. China has a absolute advantage in wine production c. China has a comparative advantage in wine production d. China has a absolute advantage in cheese production e. none of the above
c. China has a comparative advantage in wine production
55. At equilibrium, aggregate demand will equal each of the following except a. C + I b. C + S c. Full employment GDP d. Aggregate supply
c. Full employment GDP
159. In Exhibit C, if Nigeria is to specialize in the production of one of the two goods (and then trade that good to Ethiopia), which good should it be and why? If Ethiopia is to specialize in the production of one of the two good (and then trade that good to Nigeria), which good should it be and why? a. Good X for Nigeria because Nigeria is the higher opportunity cost producer of good X; good Y for Ethiopia because Ethiopia is the higher opportunity cost producer of good Y. b. Good Y for Nigeria because Nigeria is the lower opportunity cost producer of good Y; good X for Ethiopia because Ethiopia is the lower opportunity cost producer of good X. c. Good X for Nigeria because Nigeria is the lower opportunity cost producer of good X; good Y for Ethiopia because Ethiopia is the lower opportunity cost producer of good Y. d. Good Y for Nigeria because Nigeria is the higher opportunity cost producer of good Y; good X for Ethiopia because Ethiopia is the higher opportunity cost producer of good X.
c. Good X for Nigeria because Nigeria is the lower opportunity cost producer of good X; good Y for Ethiopia because Ethiopia is
106. Which is true? a. M1 is part of M2, but M2 is not part of M3. b. M1 is not part of M2, bug M2 is part of M3. c. M1 is part of M2, and M2 is part of M3. d. None is true.
c. M1 is part of M2, and M2 is part of M3.
54. When the price level in the United States, relative to the price levels in other countries, rises, this tends to a. raise imports and exports. b. Lower imports and exports. c. Raise imports and lower exports. d. Lower imports and raise exports.
c. Raise imports and lower exports.
59. Under what condition will an increase in aggregate demand result in no increase in the price level? a. The aggregated demand curve is upward sloping. b. The aggregate demand curve intersects the upward-sloping segment of the aggregate supply curve. c. The aggregate demand curve intersects the horizontal segment of the aggregate supply curve. d. The aggregate demand curve intersects the downward sloping segment of the aggregate supply curve. e. The aggregate demand curve intersects the vertical segment of the aggregate supply curve.
c. The aggregate demand curve intersects the horizontal segment of the aggregate supply curve.
56. Which best describes the classical theory of employment? a. We will always have a great deal of unemployment. b. We will usually have a great deal of unemployment. c. We will occasionally have some unemployment, but our economy will automatically move back toward full employment. d. We never have any unemployment.
c. We will occasionally have some unemployment, but our economy will automatically move back toward full employment.
176. The national defense argument for trade restriction holds that: a. the president should have the authority to erect trade barriers in case of war or national emergency b. free trade is a danger to the national defense since open borders increase the likelihood that spies will get into the country c. a country should produce those goods necessary for national defense purposes even if it doesn't have a comparative advantage in them d. if your enemy erects trade restrictions, so should you
c. a country should produce those goods necessary for national defense purposes even if it doesn't have a comparative advantage in them
82. Contractionary fiscal policy involves a. an increase in government spending and/or a decrease in taxes. b. an increase in transfer payments. c. a decrease in government spending and/or an increase in taxes. d. all of the above.
c. a decrease in government spending and/or an increase in taxes.
99. Barter involves a. money. b. specialization. c. a double coincidence of wants. d. demand deposits.
c. a double coincidence of wants.
65. The curve showing various quantities of total real output that will be offered for sale at various alternative price levels is called the a. aggregate demand curve. b. real gross domestic investment curve. c. aggregate supply curve. d. yield curve. e. aggregate individual demand curve.
c. aggregate supply curve.
100. The modern monetarists believe that a. V is very unstable. b. V never changes. c. any changes in V are either very small or predictable. d. if M rises, V will fall by the same percentage.
c. any changes in V are either very small or predictable.
63. As potential real GDP is approached, the aggregate supply curve a. becomes flatter. b. is downward sloping. c. becomes steeper. d. remains unchanged.
c. becomes steeper.
153. If country A can produce 40 units of good Y with a certain amount of resources and country B can produce 42 units of good Y with the same amount of resources: a. country A has an absolute advantage in the production of good Y b. country A has an comparative advantage in the production of good Y c. country B has an absolute advantage in the production of good Y d. country B has an comparative advantage in the production of good Y
c. country B has an absolute advantage in the production of good Y
70. There is a deflationary gap when a. equilibrium GDP is equal to full employment GDP. b. equilibrium GDP is smaller than full employment GDP. c. equilibrium GDO is larger than full employment GDP. d. none of these occur.
c. equilibrium GDO is larger than full employment GDP.
116. Demand deposits are: a. coins and currency. b. based on gold deposits with the Fed. c. funds in checking accounts. d. not legally required to be available sooner than 30 days after a check is presented to a bank.
c. funds in checking accounts.
175. A tariff is a tax on: a. savings b. capital goods c. imports d. land
c. imports
62. Keynesian theory a. established the validity of Say's Law. b. assumes that supply creates its own demand. c. is primarily demand-oriented. d. assigns much importance to Aggregate Supply and the general price level.
c. is primarily demand-oriented.
84. The practical significance of the multiplier is that a. it helps to stabilize the economy. b. it keeps inflation within tolerable limits. c. it magnifies relatively small changes in spending into larger changes in GDP. d. it brings about a reduction in MPC.
c. it magnifies relatively small changes in spending into larger changes in GDP.
118. Money is destroyed when a. loans are made. b. checks written on one bank are deposited in another bank. c. loans are repaid. d. the net worth of the banking system declines.
c. loans are repaid.
68. Keynesians tend to believe that a. laissez-faire policies stabilize market economies. b. monetary restraint aggravates inflationary pressures. c. massive government spending and tax cuts are cures for recession. d. expansionary monetary policy revives an economy from recession. e. the velocity of money rises if the money supply grows during recessions.
c. massive government spending and tax cuts are cures for recession.
71. To close a deflationary gap we should a. raise G and raise taxes. b. lower G and lower taxes. c. raise G and lower taxes. d. lower G and raise taxes.
c. raise G and lower taxes.
76. There are two ways to lower the deficit: a. raise taxes and raise government spending. b. lower taxes and lower government spending. c. raise taxes and lower government spending. d. lower taxes and raise government spending.
c. raise taxes and lower government spending.
72. Budget deficits are appropriate during a. recessions, but not inflations. b. inflations, but not recessions. c. recessions and inflations. d. neither recessions nor inflations.
c. recessions and inflations.
141. When a person cashes a check drawn on her own account, the money supply: a. increases. b. decreases. c. remains the same. d. increases because of interest rates.
c. remains the same.
91. When the unemployment rate is 7 percent and we are running a budget deficit of $70 billion, the full employment budget is: a. balanced. b. running a surplus. c. running a deficit.
c. running a deficit.
52. Laissez-fair economics was advocated by a. both Keynes and the classicals. b. neither Keynes nor the classicals. c. the classicals, but not by Keynes. d. Keynes, but not by the classicals.
c. the classicals, but not by Keynes.
60. The price level rises more rapidly as potential real GDP is approached along an aggregate supply curve because: a. profit-taking firms are exploiting their market size and power. b. of the profit incentive. c. the costs of additional units of aggregate output begin to rise more rapidly, causing firms to seek higher prices to cover these rising costs. d. none of the above.
c. the costs of additional units of aggregate output begin to rise more rapidly, causing firms to seek higher prices to cover these rising costs.
113. The classical quantity theory of money is based on a. exchange rate theory. b. Say's Law. c. the equation of exchange. d. Keynesian theory.
c. the equation of exchange.
109. The opportunity cost of holding money a. is zero because money is not an economic resource. b. varies inversely with the interest rate. c. varies directly with the interest rate. d. varies inversely with the level of economic activity.
c. varies directly with the interest rate.
94. According to the equation of exchange a. when M rises, P must rise. b. when M rises, V must fall. c. when MV falls, PQ must fall. d. when V rises, Q must rise.
c. when MV falls, PQ must fall.
147. An abundant supply of natural resources in a country: a. is a necessary condition for economic growth b. is a sufficient condition for economic growth c. will make economic growth in that country easier and more likely, ceteris paribus d. guarantees that the country will experience economic growth
c. will make economic growth in that country easier and more likely, ceteris paribus
15) In an economy with 100 million people, 70 million hold jobs and 10 million are not working but are looking for jobs. The number of people in the labor force is: a) 100 million b) 40 million c) 10 million d) 80 million e) 70 million
d) 80 million
39) During unanticipated inflation: a) savers lose b) borrowers gain c) lenders lose d) All of the above
d) All of the above
26) A plumber who quits his job in San Diego and moves to Oakland where additional plumbers are needed is said to be _______ unemployed a) Underemployed b) Cyclically c) Structurally d) Frictionally
d) Frictionally
31) In order to be classified as unemployed, a person must a) Not have a job b) Actively have looked for work within the past six weeks c) Not have a job, and currently be available for work d) Not have a job, have been actively looking for work within the past four weeks, and currently be available for work
d) Not have a job, have been actively looking for work within the past four weeks, and currently be available for work
17) The unemployment due to changes in the types of skills employers require is called ____ unemployment. a) Frictional b) Natural c) Cyclical d) Structural
d) Structural
1) A recession is always part of a: a) remission b) detraction c) recovery d) contraction
d) contraction
3) During business cycles: a) troughs are followed by recession b) troughs are followed by peaks c) peaks are followed by troughs d) peaks are followed by recessions
d) peaks are followed by recessions
78. How large will the total change in income be from a change in investment of $15 if the marginal propensity to consume (MPC) is .8? a. $12 b. $20 c. $25 d. $75 e. $200
d. $75
86. If the multiplier is 5, the MPC is a. .1 b. .2 c. .5 d. .8 e. 1.0
d. .8
157. Considering the data in Exhibit C, which of the following terms of trade would both countries agree to? a. 4.5X = lY b. 0.5X = lY c. 5X = 1Y d. 3X = 1Y
d. 3X = 1Y
122. Which statement is false? a. MV = GDP b. PQ = GDP c. MV = PQ d. None is false.
d. None is false.
77. Which of the following is an example of an automatic stabilizer? a. The reduction in the money supply that occurs as banks become less willing to make loans during a recession. b. The reduction in real wages that occurs as the economy goes into a recession. c. The increase in government spending that occurs as the result of new spending bills passed by Congress. d. The rise in tax revenue that occurs as a result of growth in real GDP. e. All of the above.
d. The rise in tax revenue that occurs as a result of growth in real GDP.
67. Which of the following is not an aspect of Keynesian economics? a. Wages and prices tend to be inflexible downward. b. Supply does not necessarily generate its own demand. c. Saving depends directly upon the level of income. d. Unemployment is a temporary phenomenon.
d. Unemployment is a temporary phenomenon.
80. When government expenditures in a given year are less than revenues, there exists a. a budge deficit. b. public revenue. c. full-employment taxation. d. a budget surplus.
d. a budget surplus.
126. In order to buy securities the Fed offers a. a low price and drives up interest rates. b. a low price and drives down interest rates. c. a high price and drives up interest rates. d. a high price and drives down interest rates.
d. a high price and drives down interest rates.
64. The wealth or 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 cause a decline in spending. c. a higher price level will increase the real value of many financial assets and therefore cause a decline in spending. d. a higher price level will decrease the real value of many financial assets and therefore cause a decline in spending.
d. a higher price level will decrease the real value of many financial assets and therefore cause a decline in spending.
57. When savings is greater than investment we are: a. at equilibrium GDP. b. at full employment GDP. c. below equilibrium GDP. d. above equilibrium GDP.
d. above equilibrium GDP.
131. The purpose of establishing the Federal Reserve System was: a. to regulate commercial banking. b. to provide for a more elastic currency. c. to increase the confidence in the nation's banks. d. all of the above. e. none of the above.
d. all of the above.
125. When the Fed wants to increase the money supply it a. raises the discount rate. b. raises reserve requirements. c. sells securities. d. buys securities.
d. buys securities.
173. The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called: a. priming b. coping c. invading d. dumping
d. dumping
156. In exhibit C, the Nigeria is the lower opportunity cost producer of___ and Ethiopia is the lower opportunity cost producer of__. a. good Y; good X b. both goods; neither good c. neither good; both goods d. good X; good Y
d. good X; good Y
89. Nondiscretionary fiscal policy also known as automatic stabilizers: a. entails legislative changes in government spending or taxes to stabilize the economy. b. include changes in tax rates designed to reduce unemployment. c. is the culprit whenever the federal government runs a budget deficit. d. involves changes in spending and taxes that occur automatically as economic conditions change.
d. involves changes in spending and taxes that occur automatically as economic conditions change.
144. Real economic growth is an increase from one period to the next in: a. business starts b. building permits c. nominal GNP d. real GNP e. none of the above
d. real GNP
92. A crowding-in effect of increased government spending on investment occurs a. when an increase in government spending leads to an increased in savings. b. when increased government borrowing reduces the quantity of funds that businesses can borrow. c. and increases investment each time government spending increases. d. when the increase in GDP caused by the increased government spending makes businesses see more investment projects as profitable.
d. when the increase in GDP caused by the increased government spending makes businesses see more investment projects as profitable.
152. A country has an absolute advantage in the production of a good if it can: a. with the same quantity of resources produce the same quantity of the good as another country b. with more resources produce more of the good of another country c. with the same quantity of resources produce the less of the good than another country d. with the same quantity of resources produce more of the good than another country e. none of the above
d. with the same quantity of resources produce more of the good than another country
35) Deflation is: a) Hyperinflation b) a constant rate of inflation c) a slow-down in the rate of inflation d) zero inflation e) a decline in the price level
e) a decline in the price level
36) Disinflation is: a) the same as deflation b) a constant price level c) negative inflation d) a drop in the general level of prices e) a reduction in the annual rate of inflation
e) a reduction in the annual rate of inflation
5) A complete cycle of a business cycle can be measured from: a) peak to peak b) peak to trough c) trough to peak d) all of the above e) none of the above
e) none of the above
115. The major consideration of whether something can serve as money is that it must be a. redeemable in precious metals such as gold or silver. b. printed by each nation's government of banking authority. c. freely available to all who want it. d. exchangeable for other types of money. e. acceptable as a means of payment.
e. acceptable as a means of payment.
139. The rate of interest charged by the Fed and paid by banks when they borrow reserves from the Fed is called the: a. federal funds rate. b. prime rate. c. real interest rate. d. reserve rate. e. discount rate.
e. discount rate.
134. The discount rate refers to: a. the penalty paid by risky bank borrowers; that is, the amount of interest they pay in excess of the prime rate. b. the rate at which bank write off and loans. c. the rate at which assets lose their real value as a result of inflation. d. the rate at which money loses its value as a result of inflation. e. the rate of interest that the Fed charges on loans to commercial banks.
e. the rate of interest that the Fed charges on loans to commercial banks.
