ECON 2002.01 Macroeconomics Final

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If an increase in government spending of $100 million causes an increase in aggregate spending of less than $100 million, we call this phenomenon: A) crowding in. B) crowding out. C) the multiplier. D) the Ricardian effect.

If instead of buying short-term Treasury securities the Fed decides to purchase the country's supply of paper clips, the money supply: A) will not change. B) might expand or contract. C) will expand. D) will contract.

Mr. Smith buys a new American-made widget for his house. How does this transaction affect U.S. GDP? a) through the consumption component b) through the investment component c) through the government component d) through the next exports component e) This transaction would not affect the U.S. GDP.

Scarcity is a situation in which a. something is being wasted. b. Something is on the verge of running out. C. some people are poor, and others are rich. d. We are unable to satisfy all our wants. e. All of the above.

Setting the maximum legal price above the market price will cause A) a shortage to develop. B) the market to reach an equilibrium outcome. C) quantity supplied to exceed quantity demanded. D) market inefficiencies.

Since 1950, the portion of U.S. GDP created by services has: A) remained relatively constant. B) fallen by a half. C) risen from less than 50% to nearly 70% of U.S. GDP. D) increased slightly.

When the Fed conducts open market operations to decrease the monetary base, real GDP growth: A) decreases only in the short run. B) increases only in the short run. C) decreases in both the short run and the long run. D) increases in both the short run and the long run.

When the expected rate of inflation is higher than the actual rate of inflation, wealth is: A) redistributed at random. B) not redistributed at all. C) redistributed from borrowers to lenders. D) redistributed from lenders to borrowers.

When the government conducts fiscal policy, it makes up for a decrease in C with: A) an increase in G B) a decrease in NX C) an increase in M D) a decrease in YR

Which are the two primary tools the Fed uses to control the money supply? A) making loans to troubled banks and open market operations B) printing paper money and paying interest on reserves held by banks at the Fed C) open market operations and altering the reserve ratio D) paying interest on reserves held by banks at the Fed and open market operations

Which measure of the average price level most closely corresponds to a student's daily economic activities? A) consumer price index B) producer price index C) GDP deflator D) household price index

"Cutting-edge" economic growth is mainly the result of: A) capital accumulation. B) immigration of skilled labor. C) technological advances. D) conditional convergence.

(Figure: Price Controls) Refer to the figure. Which price control would cause a shortage of 20 units of the good? A) a price ceiling of $10 B) a price floor of $10 C) a price ceiling of $6 D) a price floor of $6

(Figure: The Solow Model) Which of the following events would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model? A) increases in productivity B) better ideas C) physical capital accumulation D) advances in technological knowledge

(Figure: Three AD Curves) Beginning at Point A in the accompanying diagram, a positive money shock could result in a short-run growth rate of: A) 1.2%. B) 2%. C) 3%. D) 6%.

(Figure: A Real Shock) Refer to the figure. After a real shock, the economy is operating at point Y in the figure. Assuming there is no crowding out, fiscal policy that shifts aggregate demand from AD 0 to AD 2 will move the economy to point: A) A. B) B. C) V. D) X.

(Figure: AD and Monetary Policy) Refer to the figure. Suppose a given economy starts at point A in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run? A) Aggregate supply will decrease because of higher wages. B) Aggregate demand will decrease because of higher interest rates. C) Aggregate demand will increase because of lower interest rates. D) The economy will move along the AD curve to a lower inflation rate.

(Figure: Aggregate Demand and Fiscal Policy) Refer to the graph. In the best-case scenario, effective fiscal policy would take which action to correct an economy in recession at point Z? A) increase aggregate demand to move the economy to point X. B) increase the LRAS curve to a level above 3%. C) decrease the LRAS curve to a level below 2%. D) increase aggregate demand to move the economy to point W.

(Figure: Aggregate Demand) Point A on this aggregate demand curve represents a real GDP growth rate of: A) 2%. B) 3%. C) 5%. D) 7%.

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of lost consumer surplus if a price ceiling of $4 is implemented? A) $20 B) $10 C) $90 D) $80

(Figure: Depreciation and Investment) According to this diagram of the Solow model, the steady-state level of the capital stock is: A) 40 units. B) 50 units. C) 60 units. D) 70 units

(Figure: Foreign Trade with a Tariff) Refer to the figure. A $1 tariff results in A) an increase in imports of 80 million units. B) a decrease in imports of 80 million units. C) an increase in imports of 100 million units. D) a decrease in imports of 100 million units.

(Figure: Long-Run Aggregate Supply Curves) Which of the following can explain the shift of the long-run aggregate supply curve from A to B in the figure? A) development of new technology B) war C) negative supply shock D) oil crisis

(Figure: Minimum Wage) Refer to the figure. At a minimum wage of $8, firms are willing to hire: A) 45 B) 25 C) 35 D) more than 45

(Figure: Negative Supply Shock) Refer to the figure. This economy initially begins at point A, and a negative supply shock takes it to point Y. Taking the economy back to a 3% real GDP growth rate would require: A) a monetary expansion of 21%. B) an inflation rate much higher than 16%. C) an inflation rate of 16%. D) an unemployment rate of -2%.

(Figure: Two SRAS Curves) The figure shows the AD-AS model with two SRAS curves. Which of the following is TRUE of Point A? A) The actual inflation rate is 5%, and the expected inflation rate is 3%. B) The actual inflation rate is 3%, and the expected the inflation rate is 5%. C) The actual inflation rate and the expected inflation rate are both 3%. D) The actual inflation rate and the expected inflation rate are both 5%.

(Figure: U.S. Marginal and Average Tax Rates) According to the tax rates shown in the figure, an individual who earns $63,700 a year, has no deductions and claims no exemptions will pay income tax of: A) $8,772.50. B) $9,555.00. C) $15,925.00. D) $1,565.00.

(Figure: Water Market) Refer to the figure. If a price floor gets set at $8 per gallon, how big is the shortage or surplus? A) 60,000 gallons in surplus B) 120,000 gallons in surplus C) 60,000 gallons in shortage D) 12,000 gallons in shortage

(Table: Anticipating Inflation) Using the inflation data in the table, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. Which year did lenders gain relative to borrowers? A) 2000 B) 2002 C) 2003 D) 2004

(Table: Prices and Quantities in a 4-Good Economy) Refer to the table. Suppose an economy produces only the four goods listed. What is the GDP in this country? A) $6,200 B) $6,700 C) $7,200 D) $7,700

(Table: Small-Town GDP) Refer to the table. Which of the four towns has the highest standard of living? A) town A B) town B C) town C D) town D

(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M2 in this country amounts to: A) $105 million. B) $121 million. C) $137 million. D) $129 million.

. If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years? A) $400,000 B) $800,000 C) $1.2 million D) $1.6 million

. Property rights are important institutions for encouraging investment because: A) they eliminate corruption. B) they increase the total funds available to invest. C) people won't invest if they feel their property is at risk and that they may not realize a return on their investment. D) they tend to support industrial sectors more than agricultural sectors.

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year? A) 2% B) 3.5% C) 6% D) 12%

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. It also has a personal exemption of $5,000. Who benefits more from the personal exemption, a person making $35,000 or a person making $75,000? A) the person making $35,000 B) the person making $75,000 C) they benefit equally D) It is impossible to tell.

A country in a steady state invests 50% of its output in new capital ( = 0.5) and depreciates 5% of its capital stock ( = 0.05). With a capital stock of 100 units, labor remains constant. Because of technological innovation, production improves from Y = K to Y = 2 K. What is the new steady-state level of output? A) 10 B) 20 C) 40 D) 80

A deadweight loss is a total of: A) consumer and producer surplus when all mutually profitable gains from trade are exploited. B) consumer and producer surplus when all mutually profitable gains from trade are not exploited. C) lost consumer and producer surplus when all mutually profitable gains from trade are exploited. D) lost consumer and producer surplus when all mutually profitable gains from trade are not exploited.

A decrease in consumers' confidence in banks would lead to _____ in the velocity of money and result in the AD curve, shifting to the _____. A) an increase; left B) an increase; right C) a decrease; left D) a decrease; right

A major problem with inflation is that after it starts: A) it always stops quickly because the economy always corrects itself naturally. B) it is easy to stop as long as it is fully expected. C) it is difficult to stop without experiencing high unemployment. D) it can never be stopped with any government policy.

A market can be described by the equations Qd = 100 - P and Qs = P. What are the equilibrium price and quantity in this market? a) The equilibrium price is $50, and the equilibrium quantity is 50 units. b) The equilibrium price is $100, and the equilibrium quantity is 100 units. c) The equilibrium price is $0, and the equilibrium quantity is 0 units. d) The equilibrium price is $0, and the equilibrium quantity is 100 units.

A nominal variable is one that: A) uses prices in a base year. B) uses the cost of production. C) has not been adjusted for inflation. D) includes a correction for inflation.

A person has a comparative advantage in activity whenever she a. can do the activity in less time than other people b. has an absolute advantage in the activity c. can perform the activity at a lower opportunity cost than other people d. All of the above e. None of the above

A problem that makes fiscal policy less effective is that: A) fiscal policy must be offset by monetary policy. B) government spending is a relatively large portion of GDP. C) government spending does not directly affect aggregate demand. D) higher taxes or increased borrowing to fund government spending can reduce aggregate demand.

A progressive tax: A) is the tax rate paid on an additional dollar of income. B) places higher tax rates on people with higher incomes. C) equals the total tax paid divided by total income. D) is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes.

A rational decision-maker takes action only if a. the average benefit is higher than the average cost. b. the marginal benefit is higher than the marginal cost. c. The total benefit is positive. d. Society will be made better off. e. All of the above

A real shock causes: A) a shift of the aggregate demand curve. B) a shift of both the long-run aggregate supply curve and the aggregate demand curve. C) a shift of the long-run aggregate supply curve. D) a movement along the long-run aggregate supply curve.

A significant decrease in the rate of inflation is called: A) deflation. B) credible inflation. C) disinflation. D) quantitative easing.

A significant real shock in an economy can result in: A) a leftward shift of the LRAS curve. B) a leftward shift of the SRAS curve. C) consumer pessimism and a leftward shift of the AD curve. D) a leftward shift of the LRAS, SRAS, and AD curves.

A tariff is a A) tax credit for domestic exports. B) tax on imports. C) temporary grant of monopoly rights. D) renewable subsidy to the energy industry.

After graduating from high school, Steve had three choices, listed in order of preference: (1) matriculate at the OSU (2) work in a printed circuit board factory (3) attend a rival college. His opportunity cost of going to the OSU includes a. the income he could have earned at the printed circuit board factory b. the direct cost of attending the OSU (tuition, textbooks, etc.) C. the benefits he could have received from attending the rival college d. All of the above e. Just a. and b.

An article in the newspaper suggests that an Indian tribe should use coal rather than gas power because the tribe owns 114 billion tons of coal reserves. This statement: a. is true because if they own the coal, they do not have to pay for it b. is false because coal is a pollutant c. is false because it ignores opportunity costs d. none of the above

An economy with production function Y = F(K) = Square Root K that has 400 units of capital will produce _____ units of output. A) 1,600 B) 400 C) 40 D) 20

An increase in _____ will shift the SRAS curve. A) actual inflation, but not expected inflation, B) expected inflation, but not actual inflation, C) both actual inflation and expected inflation D) neither actual inflation nor expected inflation

An increase in money growth will cause inflation to increase in: A) the short run only. B) the long run only. C) both the short run and the long run. D) neither the short run nor the long run.

An increase in money growth will cause the economy's AD curve to: A) not shift. B) shift inward. C) shift outward. D) shift outward during expansions and inward during contractions.

An increase in the rate of expected inflation causes: A) the short-run aggregate supply curve to shift right. B) the short-run aggregate supply curve to shift left. C) an upward movement along the short-run aggregate supply curve. D) a downward movement along the short-run aggregate supply curve.

An increase in uncertainty will lead to: A) an increase in v, but a decrease in M. B) a decrease in v, but an increase in M. C) an increase in both v and M. D) a decrease in both v and M.

As a result of a positive shock to C: A) inflation and output growth increase in the short run, but in the long run, they return to the rates before the shock. B) inflation and output growth decrease in the short run, but in the long run they return to the rates before the shock. C) inflation increases and output growth decreases in the short run, but in the long run, they return to the rates before the shock. D) inflation and output growth increase in both the short run and the long run.

As income rises, the U.S. marginal tax rate: A) decreases smoothly. B) decreases in steps. C) increases smoothly. D) increases in steps.

Assume Jason produces 200 tires. He sells 100 tires at a price of $80 each to Toyota. Toyota uses those 100 tires to install in 25 cars. Each car sells at $10,000. Jason sells remaining 100 tires at a price of $100 each to regular consumers who replace their worn tires. What is the Impact on GDP from these transactions? a. 268,000 b. 260,000 c. 250,000 d. 270,000 e. 277,000

At an average growth rate of 4%, approximately how long would it take for an economy to double its GDP? A) 17.5 years B) 25 years C) 50 years D) 70 years

Automatic stabilizers are components of federal revenue and spending that affect _____ without the need for explicit action by policymakers. A) aggregate demand B) the LRAS curve C) short-run aggregate supply D) aggregate demand and short-run aggregate supply

Bank A has $100 million in deposits, $15 million in reserves, and $85 million in loans. Bank A's reserve ratio is: A) 10%. B) 15%. C) 20%. D) 75%.

Because of the multiplier effect, if a shock causes aggregate demand to increase by $200 million, then the government should _____ to restore the economy to its original growth rate. A) do nothing B) increase government spending by more than $200 million C) reduce government spending by less than $200 million D) increase government spending by $200 million and cut taxes by $200 million

Betty Lou recently quit her job so that she can go back to school full-time to earn her MBA. How would she be classified by the BLS? a) Employed b) Unemployed c) under-employed d) not in the labor force e) cyclically unemployed

Bob's total benefit and total cost schedules for plates of fried clams are listed in the table below. Use it to answer the next two questions. How many plates of clams will Bob consume in total? (Assume he employs the marginal principle.) a. 9 b. 8 or 7 c. 6 d. 4 e. None of the above

Bob's total benefit and total cost schedules for plates of fried clams are listed in the table below. Use it to answer the next two questions. What is the marginal benefit to Bob of consuming a third plate of clams? a. 21 b. 15 c. 12 d. 9 e. 6

Bob's total benefit and total cost schedules for plates of fried clams are listed in the table below. Use it to answer the next two questions. Which would leave Bob better off (measured as 'benefits minus costs'), paying $25 for an "all the plates of clams you can eat" buffet, or paying $4 for each plate of clams? a. All you can eat b. $4 per plate c. Indifferent d. More information is required

Brittany Spears is a typical 20-year-old college student. She is enrolled full time, taking 15 hours of coursework. In addition, she works 15 hours per week waiting tables at a local restaurant. How does the BLS officially classify her? a) She is Not in the Labor Force b) She is Unemployed c) She is Underemployed d) She is Employed e) She is not counted at all

Buyers and sellers communicate primarily: a. through surveys. b. Through government agencies. c. Through advertising. d. Through their willingness to buy and sell at various prices. e. All of the above.

Changes in v tend to be _____, and changes in M tend to be _____. A) permanent; temporary B) temporary; permanent C) permanent; permanent D) temporary; temporary

Communal property creates a: A) corruption problem. B) stability problem. C) free rider problem. D) self-selection problem.

Conditional convergence refers to the tendency for: A) poorer countries to grow faster than richer countries, but only if they receive sufficient foreign investment. B) richer countries to grow faster than poorer countries given similar steady-state capital stocks, so the poor countries never catch up with the rich countries. C) poorer countries to grow faster than richer countries given similar steady-state capital stocks, but the poor countries will never catch up with the rich countries. D) countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

Consider the categories given below. What are the three categories used by the BLS to classify the civilian, adult population? i. Children ii. employed (all - full and part-time) iii. employed (full-time only) iv. employed (part-time only) v. retired vi. not in the labor force vii. unemployed a) i, ii and v b) ii, iii and iv c) i, ii and vii d) ii, vi and vii e) iii, v and vii

Continuing the previous question, at the price ceiling of 40, there would be: a. a shortage. b. A surplus. c. Quantity demanded would equal the quantity supplied. d. A negative externality. e. a positive externality.

Continuing the previous question, suppose a price ceiling of 40 is established. What would be the number of widgets bought and sold? a. 10 b. 20 c. 30 d. 40 e. No sales would occur

Current projections regarding the debt-to-GDP ratio are that: A) under any plausible scenario, the federal budget is on a sustainable path. B) under any plausible scenario, the federal budget is on a continuous path. C) the federal debt will grow much more slowly than the economy over the long run. D) the federal debt will grow much faster than the economy over the long run.

Disinflation occurs when the Fed: A) raises the growth rate of the money supply. B) reduces the growth rate of the money supply. C) sets the money supply growth rate above the inflation rate. D) does nothing when a shock occurs.

Even if the United States experiences no more recessions and the federal government spends nothing extra on any particular program; its expenditures will still rise because: A) unemployment benefits will rise. B) the government has committed to increase Medicare payments for the next three decades. C) it will receive less foreign aid in the future. D) the population is aging, and thus, Social Security and Medicare payments will rise.

Figure: Deadweight Loss Refer to the figure. What areas represent the deadweight losses in the labor market as a result of the imposition of a minimum wage at $4? A) areas (C+ F) B) areas (B+ C) C) area D D) There is no deadweight loss in this market as a result of the $4 minimum wage.

Figure: Three Aggregate Demand Curves Consider the three aggregate demand curves shown in the graph. Movement from Point A to Point D represents: A) an increase in spending growth from 2% to 3%. B) an increase in spending growth from 4% to 6%. C) an increase in real GDP growth, but not spending growth. D) an increase in inflation, but not spending growth.

Figure: Value of Uses.The sections labeled A, B, and C represent, respectively, the: A) highest-value uses, lower-valued uses, least-valued uses. B) highest-value uses, least-valued uses, lower-valued uses. C) least-valued uses, lower-valued uses, highest-value uses. D) lower-valued uses, highest-value uses, least-valued uses.

Fiscal policy involving _____ can influence business cycle fluctuations. A) the taxation of income B) government spending C) government borrowing D) taxation, government spending, and borrowingD

Fiscal policy is well-suited to counteract a recession or depression when: A) unemployment is low. B) taxes are high. C) a real negative shock occurs. D) resources are underused.

Flexible prices ensure that: A) resources are allocated to their highest-value uses. B) suppliers will always profit from necessity goods. C) self-interested individuals will not interfere with the efficiency of the market. D) prices will always be minimized.

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to: A) increase. B) decrease. C) remain constant. D) become difficult to predict.

For an aggregate demand curve with M = 10% and v = 0%, if inflation is 6%, then real growth is: A) -6%. B) -4%. C) 4%. D) 16%.

For most of recorded human history, real GDP per capita has: A) increased at a rapid rate. B) increased at a modest rate. C) remained about the same. D) decreased at a modest rate

For which of the following is there a market? a. Orange juice. b. Pedigree dogs. c. Hiking in national forest land. d. All of the above. e. Just a and b.

Fully 73% of the world's population live in countries with a GDP: A) less than the world average. B) more than the world average. C) per capita less than the world average. D) per capita more than the world average.

Germany and Japan's rapid growth following the end of World War II is an example of: A) indirect growth. B) cutting-edge growth. C) growth due to increases in natural resources. D) catch-up growth.

Good institutions tend to: A) decrease the rate of investment. B) leave the rate of investment unchanged. C) increase the rate of investment. D) have an ambiguous effect on investment.

Government has a role in subsidizing research and development when: A) the beneficiaries are below the poverty line. B) it can increase tax revenue. C) it can more efficiently allocate resources. D) the spillovers are large.

Government spending as a percentage of GDP in the United States today is: A) larger than any other developed country in the world. B) about average as compared with other developed countries. C) one of the smallest among developed countries. D) comparable with countries such as Germany, the Netherlands, and Italy.

Gross domestic product (GDP) is a) the quantity of output produced within an economy in a given year. b) the value of all goods and services produced within an economy in a given year. c) the value of all final goods and services produced within an economy in a given year. d) the value of all final and intermediate goods and services produced within an economy in a given year. e) the number of final goods and services produced within an economy in a given year.

High-income economies generally have _____ that incentivize individuals' self-interest by using _____. A) institutions; profit-seeking motives B) government mandates; legal penalties C) central planners; profit-seeking motives D) institutions; legal penalties

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher-ups. Your salary is $35,000 per year. By the year 2040, you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2015 is 210. The CPI in the year 2040 is 650. Use that information to answer the next few questions. Expressed in 2015 dollars, what is your salary in 2040? a) $32,308 b) $35,000 c) $100,000 d) $108,333 e) $309,524

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher-ups. Your salary is $35,000 per year. By the year 2040, you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2015 is 210. The CPI in the year 2040 is 650. Use that information to answer the next few questions. Expressed in 2040 dollars, what is your salary in 2015? a) $11,308 b) $32,308 c) $35,000 d) $100,000 e) $108,333

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher-ups. Your salary is $35,000 per year. By the year 2040, you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2015 is 210. The CPI in the year 2040 is 650. Use that information to answer the next few questions. In terms of purchasing power, when were you better off? a) 2015 b) 2040 c) it was the same in both years d) unable to determine

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher-ups. Your salary is $35,000 per year. By the year 2040, you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2015 is 210. The CPI in the year 2040 is 650. Use that information to answer the next few questions. What happened to your purchasing power from 2015 to 2040? a) your purchasing power decreased over time b) your purchasing power increased over time c) your purchasing power stayed the same d) unable to determine

Hooray (again!) It is 10 years later, and now your salary is $35,000, and comic books are now $6. What has happened to your money (nominal) wage and your real wage? a) Your money wage and real wage have both decreased b) Your money wage has stayed constant, but your real wage has decreased c) Your money wage has increased, but your real wage has stayed constant d) Your money wage has increased, but your real wage has decreased e) Your money wage has decreased, but your real wage has increased

Hooray! You just landed a job earning $30,000. You spend all your money on comic books, which cost $5 each. What is your money (nominal) wage? What is your real wage? a) Money wage is $6,000; real wage is 30,000 comic books b) Money wage is $30,000; real wage is $6,000 c)Money wage is 6,000 comic books; real wage is $30,000 d)Money wage is $6,000; real wage is $30,000 e)Money wage is $30,000; real wage is 6,000 comic books

How many measures of GDP are there? a) 1 - the National Measure of GDP b) 2 - Economic GDP and Accounting GDP c) 2 - Implicit GDP and Explicit GDP d) 2 - Nominal GDP and Real GDP e) 3 - Economic GDP, Technical GDP and Actual GDP

I am considering joining a "shopper's club," where I pay $100 membership fee and then get a twenty-five percent discount on all my purchases. In making my decision, I should: a. only join if I plan to make at least $100 of purchases b. Ignore the membership fee since it is a sunk cost c. Only join if I expect to get at least $100 worth of discounts d. only join if they promise to refund my membership fee if I am not satisfied

If Armenia can make 500 hats or 200 coats or some combination, and Estonia can make 400 hats or 100 coats or some combination, then: a. Armenia has a comparative advantage in hats and Estonia in coats. b. Estonia has a comparative advantage in hats and Armenia in coats. c. Armenia has a comparative advantage in both hats and coats. d. Neither has a comparative advantage in either product since the differences are not large

If Armenia can make 500 hats or 200 coats or some combination, and Estonia can make 400 hats or 100 coats or some combination, then: Which of the following trades would make both countries better off? a. Armenia makes hats and trades them for coats for one coat = 3 hats. b. Armenia makes coats and trades them for hats for one coat = 3 hats. c. Armenia makes hats and trades them for coats for one coat = 4 hats. d. Armenia makes coats and trades them for hats for one coat = 4 hats. e. Armenia makes coats and trades them for hats for one coat = 2.5 hats.

If Ricardian equivalence holds, then a $100 million tax cut financed by increased government borrowing means that: A) the private saving will increase by $100 million. B) consumption will increase by $100 million. C) government spending will increase by $100 million. D) aggregate demand will increase by $100 million.

If Ricardian equivalence is correct, any tax cut will cause consumer spending to: A) increase. B) decrease. C) remain unchanged. D) change in an unpredictable manner.

If a buyer values a product at $28 and a seller's opportunity cost of providing the product is $12, the gains from trade a. cannot be determined without knowledge of the price. b. are $28. C. are $12. d. are $16. e. are $40.

If a real economic shock shifts the LRAS curve to the left, which of the following will NOT further reduce real GDP growth and inflation? A) a decrease in money growth B) uncertainty that reduces consumption C) a monetary policy rule that is credible D) loss of market confidence about the power of monetary policy

If an American teenager will work for $5.00 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour, and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences: A) lost gains from trade. B) wasteful increases in quality. C) resource misallocations. D) reductions in product quality.

If an economy described by the production function Y = K has 30% of output invested in new capital and 6% of the capital stock depreciated each year, what is the steady-state level of capital? A) 3.24 units B) 9 units C) 25 units D) 36 units

If initially, M= 5%, v= 3%, P= 2%, and RY= 6% and then because of economic uncertainty v falls to 1%, what should the Fed do? A) Quietly raise RY to 8% to offset the decrease in v. B) Publicly lower M to 3% so that M-v stays constant at 2%. C) Publicly demonstrate a commitment to keep M+v at 8% by raising M. D) Quietly raise M without telling anyone, as only unexpected inflation is expansionary.

If people are "rational" in the economic sense, they a. never make mistakes. b. Put making money before any other goal. c. Seek only their welfare. d. None of the above.

If the Fed reduces to fight inflation after a negative real shock, what should occur? A) higher inflation B) lower real growth C) higher real growth D) no change in real growth

If the Fed wants to raise real GDP growth by raising money supply growth, which condition will make monetary policy more effective in increasing real GDP growth? A) uncertainty causing people to increase their demand for cash B) people losing confidence and reducing investment spending C) people believing the Fed will abandon its policy D) prices continuing to remain very sticky

If the Federal Reserve overstimulates the economy by increasing money growth too much, then inflation will: A) make long-term planning and contracting easier. B) create arbitrary redistributions of wealth. C) make price signals easier to interpret. D) bring the economy into a recession.

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock, the inflation rate will be: A) lower, but the growth rate will be higher. B) lower, but the growth rate will be even lower. C) higher, but the growth rate will be lower. D) higher, but the growth rate will be even higher.

If the Federal Reserve responds to a negative real shock with a decrease in money growth, the Federal Reserve's response will cause inflation to: A) remain constant. B) decrease to a lower point than it was before the shock. C) increase by less than it otherwise would have. D) increase by more than it otherwise would have.

If the U.S. can make ten roses or 40 daffodils and Mexico can make five roses or ten daffodils, then a. No trade is possible since the U.S. is better at producing both roses and daffodils. b. Trade would make both countries better off if the U.S. specializes in roses and Mexico in daffodils. c. Trade would make both countries better off if Mexico specialized in roses and the U.S. in daffodils. d. Mexico should buy both daffodils and roses from the U.S.

If the U.S. can make ten roses or forty daffodils and Mexico can make five roses or ten daffodils. Both countries could be made better off by participating in trade at the price of a. 1 rose for five daffodils. b. 5 roses for one daffodil. C. 1 rose for three daffodils. d. Three roses for one daffodil e. No trade could make both countries better off.

If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double? A) 10 years B) 11 2/3 years C) 17 years D) 25 years

If the demand for widgets is Qd = 90 - Pd and the supply of widgets is Qs = Ps - 30, what is the total surplus created is widgets sell at the equilibrium price? a. 225 b. 500 c. 900 d. 2700 e. -2700

If the demand function is QD = 40-2P and price rises by 10, what will happen to quantity demanded? a. It will fall by 10. b. It will fall by 20. c. It will fall, but in order to determine the precise amount, we would need a supply function. d. Demand will fall, but the quantity demanded will not change.

If the economy is in a recession, the most appropriate fiscal policy would be to: A) decrease government spending to balance the budget. B) decrease both government spending and taxes. C) increase government spending and cut taxes, thus running a higher budget deficit. D) increase government spending and raise taxes to keep the budget balanced.

If the equilibrium price in a market has risen from $10 to $25, and the equilibrium quantity has fallen from 50,000 to 35,000, we would know that: a. demand has increased. b. Supply has decreased. c. Demand has decreased. d. Supply has increased. e. both supply and demand have decreased.

If the federal government spends 12% of GDP and collects revenues of 10% of GDP, what is the deficit as a percentage of GDP? A) 1% B) 2% C) 11% D) 12%

If the general price level of new goods and services increases from year 1 to year 2 while the quantity of goods and services produced remains the same, what happens to nominal and real GDP? a) nominal GDP will remain the same; real GDP will rise b) nominal GDP will rise; real GDP will fall c) nominal GDP will rise; real GDP will remain the same d) nominal GDP will remain the same; real GDP will fall e) nominal GDP will fall; real GDP will rise

If the government sets a price ceiling at $8, it will create a deadweight loss of A) $6. B) $36. C) $9. D) $24. E) $12

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is: A) 0%. B) 1%. C) 2%. D) 4%.

If the supply of "roots" (an input) increases, what would we expect to happen in the market for root beer? a. Demand to increase. b. Demand to decrease. c. Supply to increase. d. Supply to decrease.

If the supply of a good is fixed (like wine bottled in 1983): a. the supply curve will be horizontal. b. the supply curve will slope downward. c. the good will not have a supply curve. d. the supply will be vertical.

If then you discover that you were mistaken, and that, although the price had risen, the equilibrium quantity of soybeans has fallen, you would know that: a. demand has decreased. b. Demand has increased. c. Supply has decreased. d. Supply has increased. e. None of the above.

If uncertainty causes people to increase their demand for cash and, at the same time, the Fed raises money supply growth, then the Fed's action will: A) shift the AD curve further to the right than if the uncertainty did not exist. B) shift the AD curve less to the right than if the uncertainty did not exist. C) shift the AD curve further to the left than if the uncertainty did not exist. D) cause the economy to move to a new long-run equilibrium.

If v= 4%, P = 3%, and RY = 2%, then M must equal: A) 1%. B) 2%. C) 6%. D) 7%.

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to: A) an increase in inflation and a rise in real long-run GDP growth. B) an increase in inflation, but no rise in real short-run GDP growth. C) an increase in inflation and in the profits of firms. D) no change in inflation, but a fall in the profits of firms.

If you are searching for an expensive new suit, it makes sense to keep looking as long as a. you have not found the lowest price available. b. the shopping time matters less to you than the lower price you expect to get. c. There are stores left that you have not checked. d. you face no opportunity costs. e. All of the above.

If you decide to go to a movie this evening rather than study economics, you thereby demonstrate that: a. you like movies more than economics. b. you may like movies more than economics, but you value economics more at the margin. C. you consider the opportunity cost of going to the movies to be less than the opportunity cost of studying economics. d. at the margin, you value an evening of movie watching more than an evening of economics e. None of the above.

If you have bought an $80 sticker to park on campus, and you plan to park on campus eighty times before the semester ends, the marginal cost to you each time you park is a. $0 b. $1 c. $8 d. $80 e. Negative

If you stop studying biology and spend an hour studying economics instead, we can conclude that: a. you like studying economics better than studying biology. b. you would rather spend whatever time you have studying economics than studying biology C. you value one additional hour of studying economics more than one additional hour of studying biology. d. you value studying economics more than studying biology. e. All of the above.

If π > E(π): A) firms' profits will increase. B) money growth will cause the short-run aggregate supply curve to shift. C) firms' profits will decrease. D) there will be no change in real GDP growth because it is determined by real factors.

Imagine an economy with production function Y = F(K) = Square Root K and 400 units of capital. If the depreciation rate is = 0.05, how much capital will deteriorate in the next period? A) 4 units B) 8 units C) 16 units D) 20 units

Imagine an economy with production function Y = F(K) = Square Root K and 400 units of capital. If the fraction of output invested in new capital is = 0.2 and the depreciation rate is = 0.05, how much total capital will be available in the next period? A) 380 units B) 384 units C) 400 units D) 404 units

Imagine an economy with production function Y = F(K) = Square Root K and 400 units of capital. If the fraction of output invested in new capital is = 0.2, how much new capital will be created in the next period? A) 2 B) 4 C) 6 D) 8

Imagine an economy with production function Y = F(K) = Square Root K and 400 units of capital. If the fraction of output invested in new capital is = 0.2, the depreciation rate is = 0.05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run? A) It will remain at 20. B) It will decline. C) It will increase. D) It will increase for a time and then return to 20.

In 2017, the U.S. debt-to-GDP ratio was: A) 40%. B) 113%. C) 75%. D) 10%.

In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money? A) 4 B) 2 C) 2.5 D) 5

In a small economy, the rate of money growth for the current year is 2%. The velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate? A) 3.5% B) 1.5% C) 0.5% D) 2%

In a steady state, the level of investment: A) exceeds depreciation. B) is equal to depreciation. C) is less than depreciation. D) could be equal to, greater than, or less than depreciation.

In a typical year, changes in government spending compared to overall spending is relatively: A) small. B) large. C) unpredictable. D) well-timed.

In the AD-AS diagram, a "tight" monetary policy shifts the: A) AD curve to the left. B) AD curve to the right. C) LRAS curve to the left. D) LRAS curve to the right.

In the AD-AS model, an unexpected decrease in the growth rate of the money supply causes: A) a rightward shift of the AD curve and then a leftward shift of the SRAS curve. B) a rightward shift of the AD curve and then a rightward shift of the SRAS curve. C) a leftward shift of the AD curve and then a leftward shift of the SRAS curve. D) a leftward shift of the AD curve and then a rightward shift of the SRAS curve.

In the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total output to: A) increase, but by less than one unit. B) increase by more than one unit. C) remain the same. D) decrease.

In the absence of any policy intervention, when C falls the result in the short run will be: A) higher inflation and lower real growth. B) lower inflation and lower real growth. C) higher inflation and higher real growth. D) lower inflation and higher real growth.

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will: A) decrease from 7% to 5%. B) increase from 5% to 7%. C) decrease from 13% to 8%. D) increase from 8% to 13%.

In the best-case scenario, the Federal Reserve is most successful at counteracting a negative _____ shock. A) AD B) SRAS C) LRAS D) real

In the graph of the AD-AS model, what is measured on the horizontal axis? A) the average price level B) real GDP C) the inflation rate D) real GDP growth

In the market for a normal good, an increase in income will cause an increase in ______, an increase in quantity ______, and a(n) ______ in price. a) demand; supplied; increase. b) demand; supplied, decrease. c) supply; demanded; decrease. d) supply; demanded; increase.

In the range for which the demand curve for good is above the supply curve: a. people value the good more than it costs to make it. b. It costs more to make the good, and then the good is valued. c. the law of demand dominates the law of supply. d. the quantity supplied is large. e. None of the above.

In the short run, if the Fed responds to a negative real shock by raising the growth rate of the money supply, inflation will be: A) lower than the rate without responding to the negative shock. B) higher than the rate without responding to the negative shock. C) the same as the rate without responding to the negative shock. D) lower or higher than the rate without responding to the negative shock, depending on the size of money supply growth.

In what way are monetary and fiscal policies similar? A) They both target aggregate demand to overcome business fluctuations. B) They are both useful when the economy suffers from real shocks. C) Both are insulated from the political process. D) Neither involves a lag.

Inflation is: A) the average number of times a dollar is spent on final goods and services in a year. B) when people mistake changes in nominal prices for changes in real prices. C) a decrease in the average level of prices. D) an increase in the average level of prices.

Jon needs 200 cases of Cristal champagne to cater a wedding. First, Jon visits all the wine shops located within ten miles, but cannot get enough cases. Then Jon visits all wine shops located between 10 and 50 miles but still is short a few cases. Finally, Jon visits all wine shops located within 50 and 100 miles and gets the last few cases he needs. Jon's struggles illustrate: a. the law of demand. b. that sometimes the gains from trade are not worth it. C. the principle of absolute advantage. d. the law of supply.

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? A) 2% B) 3% C) 5% D) 7%

Landlocked countries tend to grow _____ because _____. A) faster; lack of water access makes trade more difficult and costly B) slower; lack of water access makes trade more difficult and costly C) faster; fewer resources are required to build a strong military D) slower; fewer resources are required to build a strong military

M1 refers to: A) currency. B) currency plus total reserves held at the Fed. C) currency plus checkable deposits. D) currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Monetary policy is: A) equally effective in dealing with real shocks and aggregate demand shocks. B) more effective in dealing with real shocks than with aggregate demand shocks. C) less effective in dealing with real shocks than with aggregate demand shocks. D) totally ineffective in dealing with real shocks and aggregate demand shocks.

Monetary policy is: A) equally effective in dealing with real shocks and aggregate demand shocks. B) more effective in dealing with real shocks than with aggregate demand shocks. C) less effective in dealing with real shocks than with aggregate demand shocks. D) utterly ineffective in dealing with real shocks and aggregate demand shocks.

Money illusion occurs when people: A) become irrational about money use. B) become rationally ignorant about money. C) mistake changes in prices for changes in quality. D) mistake changes in nominal prices for changes in real prices.

Movie-goers who are willing to put up with long lines at a cinema to get a lower price are a. not observing the marginal principle. b. Have not evaluated the marginal cost of the time they give up c. would give up any amount of time to save a little money d. All of the above. e. none of the above.

Mr. Smith buys a new American-made widget for his business. How does this transaction affect U.S. GDP? a) through the consumption component b) through the investment component c) through the government component d) through the next exports component e) This transaction would not affect U.S. GDP.

Nearly 70% of all U.S. federal income taxes are paid by: A) the bottom 20% of income earners. B) the middle class: the twentieth percentile to the eightieth percentile of income earners. C) the top 20% of income earners. D) the top 1% of income earners.

Nobel Prize-winning economist Milton Friedman said, "Inflation is always and everywhere a _____." A) monetary phenomenon B) risky phenomenon C) velocity phenomenon D) growth phenomenon

One way the government can use fiscal policy to fight a recession is to: A) spend less money. B) decrease Social Security payments. C) cut taxes. D) reduce welfare subsidies.

Other things equal, will a temporary individual tax rebate or a permanent individual tax rebate provide the most significant increase in aggregate demand? A) a temporary tax rebate B) a permanent tax rebate C) They will both produce the same amount of stimulus. D) Neither will provide any stimulus.

Our economic model would lead us to predict that if monetary aid per child given to single parents increases substantially (holding everything else the same), a. children will become less scarce. b. Single people will have many more children. c. Single people will have fewer children at the margin. d. Single people will be more likely to have children at the margin. e. the number of children is unlikely to change because the decision to have children is based on opportunity cost, not just aid.

Refer to the figure. Assume that the economy is initially at point Y in the graph. In the best-case scenario, the Fed will: A) increase the money supply to take the economy to point X. B) decrease the money supply to take the economy to point W. C) increase the money supply to take the economy to point W. D) decrease the money supply to take the economy to point X.

Refer to the figure. In the figure, assume the initial real growth rate of the economy is 3 percent when a negative aggregate demand shock shifts the AD curve from AD 1 to AD 2. As a result of the Fed's policy response, the AD curve shifts to AD 5 in the short run. Which of the following is TRUE about the Fed's policy response? A) The Fed responded too little to the shock. B) The Fed responded too much to the shock. C) The Fed provided just the right amount of response to the shock. D) The Fed was too fast in responding to the shock.

Refer to the figure. This economy initially begins at point A, and a negative supply shock takes it to point Y. If the Fed reacts by increasing money growth by 3%, this will take the economy to: A) point A. B) point B. C) point X. D) point V.

Refer to the figure. Which statement is correct? A) A price floor set at W1 would cause a labor surplus best labeled by A. B) A price floor set at W1 would cause a labor surplus best labeled by B. C) A price floor set at W2 would cause a labor surplus best labeled by A. D) A price floor set at W2 would cause a labor surplus best labeled by B.

Refer to the figure. With the tariff in this figure, the domestic quantity demanded is ______ units, and the quantity supplied domestically is ______ units. A) 10; 8 B) 8; 8 C) 10; 10 D) 9; 7

Refer to the table. This table shows inflation data for an economy. During what period did this economy experience deflation? A) 2003 to 2005 B) 2005 to 2006 C) 1998 to 2000 D) 2000 to 2002

Representing a market for apartments, with a rent-controlled price of $800, the long-run supply curve will be ______ elastic than the short-run supply curve, causing the ______. A) more; shortage to increase to 6,000 apartments B) more; shortage to decrease to 3,000 apartments C) less; shortage to increase to 6,000 apartments D) less; surplus to decrease to 8,000 apartments

Ricardian equivalence: A) will occur less when consumers practice consumption smoothing. B) does not occur when a political administration is set to change. C) has not occurred in the United States. D) is less significant when consumers deem tax cuts or rebates as permanent.

Senior citizens deserve an income that will allow them to live in comfort for their remaining years." This is an example of: a. a normative statement. b. A positive statement. c. Neither a positive and a normative statement. d. A statement reflecting the concept of scarcity. e. a recognition of opportunity costs.

Social Security has become _____ over time. A) less generous and less progressive B) less generous and more progressive C) more generous and less progressive D) more generous and more progressive

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 workings full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired, and another 15 stay-at-home spouses. Use this information to answer the next three questions. How would you characterize those that are unemployed in Springfield? a) frictionally unemployed b) structurally unemployed c) technically unemployed d) underemployed e) cyclically unemployed

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 workings full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired, and another 15 stay-at-home spouses. Use this information to answer the next three questions. The size of the labor force is ______ and the BLS would officially count ____ as unemployed. a) 675; 275 b) 400; 30 c) 430; 30 d) 430; 275 e) 380; 0

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 workings full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired, and another 15 stay-at-home spouses. Use this information to answer the next three questions. The unemployment rate is _____ and the labor force participation rate is _______. a) 40.7%; 63.7% b) 7.9%; 51.9% c) 7.5%; 50.0% d) 7.0%; 59.3% e) 7.0%; 63.7%

Sticky wages and prices: A) reduce the impact of negative shocks. B) increase the impact of positive shocks. C) have no effect on the impact of negative shocks. D) offset the impact of positive shocks.

Suppose a central bank targets a fixed rate of inflation. If a negative real shock occurs, then the central bank would use monetary policy to shift the: A) AD curve to the right. B) AD curve to the left. C) SRAS curve to the right. D) SRAS curve to the left.

Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How does his production get allocated between U.S. and Canadian GDP? A) Half of the doctor's income counts toward U.S. GDP and half toward Canadian GDP. B) The full income is counted in the GDP of the country in which the doctor is a permanent resident. C) The full income gets counted in both U.S. GDP and Canadian GDP. D) The value of the services produced in the United States gets counted in U.S. GDP and the value of the services produced in Canada gets counted in Canadian GDP.

Suppose a landmark court case makes it more expensive to run Day Care centers, but it also makes it less likely that children cared for will be harmed. We can expect: a. the price of Day Care services to increase. b. the price of Day Care services to decrease. C. the price of Day Care services to increase only if demand is upward sloping. d. the price of Day Care services to increase only if the change in supply is more significant than the change in demand.

Suppose that Domenic Toretto buys four used tires for $250 at the tire store for his Dodge Charger. How does this affect GDP? a) It increases GDP by $250 because consumption increased by $250. b) It increases GDP by $250 because investment increased by $250. c) It increases GDP by $250 because net exports increased by $250. d) It does not affect GDP because the transaction does not count. e) Domenic Toretto would never buy used tires for his Charger.

Suppose that John Doe quits his job and becomes unemployed while he looks for a job more to his liking. This is an example of a) technical unemployment b) spontaneous unemployment c) structural unemployment d) cyclical unemployment e) frictional unemployment

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. Use that information to answer the next two questions. In theory, what does this information mean? a) The price of all goods produced domestically has increased by 5%. b) The price of all goods purchased by consumers has increased by 5%. c) The price of used goods and imports has increased by 5%. d) The purchasing power of the dollar has fallen by 5%. e) Real GDP rose by 5%.

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. Use that information to answer the next two questions. It is generally agreed that because of the way that the CPI is constructed, it may "overstate" the true effects of inflation. What does this mean? a) In actuality, the purchasing power of the dollar probably fell by slightly less than 5%. b) In actuality, the purchasing power of the dollar probably fell by slightly more than 5%. c) In actuality, the price of all goods purchased by consumers has risen by slightly more than 5%. d) In actuality, the price of all goods produced domestically has risen by slightly more than 5%. e) In actuality, real GDP rose by slightly less than 5%.

Suppose that the natural rate of unemployment is estimated to be 5.5%. Suppose further that the actual unemployment rate is 6.5%. Which of the following statements must be true? a) Structural unemployment is greater than frictional unemployment. b) Cyclical unemployment is 1%. c) Structural unemployment is 1%. d) Cyclical unemployment is greater than structural unemployment. e) The economy is at full employment.

Suppose that the price of oranges and apples rises. What would you expect to happen to the market price and quantity of orange juice? (Hint: apple juice is a substitute) (DRAW THE CURVES!) a. The equilibrium price would increase, but the impact on equilibrium quantity would be uncertain. b. The equilibrium price would decrease, but the impact on the equilibrium quantity would be uncertain. c. Both equilibrium price and quantity would increase. d. Equilibrium quantity would increase, but the impact on the equilibrium price would be uncertain. e. Equilibrium quantity would decrease, but the impact on the equilibrium price would be uncertain.

Suppose the MPC=0.6. Assume there is no crowding out. If the government increases its expenditures by $200 billion, then by how much and in which direction does AD change? a) $333.33 billion, up b) $333.33 billion, down c) $500 billion, up d) $500 billion, down e) $120, up

Suppose the federal government incurred a $1 billion deficit in 2011. What was true of the national debt? A) The national debt was $1 billion. B) The national debt decreased by $1 billion. C) The national debt increased by $1 billion. D) The national debt was not related to the deficit.

Suppose the multiplier is 3, and the government increases its purchases by $25 billion. Suppose that GDP increases by $30 billion. Then the crowding-out effect is a) $25 billion. b) $30 billion. c) $45 billion. d) $60 billion. e) there is no crowding out!

Suppose you are forced to take a pay cut of 5% when the economy is experiencing an overall deflation of 5%. If in response to your pay cut you also reduce your consumption by 5%, then economists would say: A) you made a rational decision. B) you are exhibiting money illusion. C) your real wage decreased by 5%. D) the quantity theory of money held.

Suppose you deposit $1,000 in your checking account. If the reserve ratio is 10%, how much of your deposit can the bank loan out? A) $0. B) $100. C) $900. D) $1,000.

Suppose you go to an amusement park, and rather than paying $1.50 per ride, and you pay $20 for a card that gives twenty rides. What is the cost of going home after only ten rides when the card would allow you twenty rides? a. $10, because only half the card was used. b. $20, because much of the card was wasted. c. $5, because you would have paid only $15 if you had purchased ten rides individually. d. All of the above. e. None of the above.

Suppose you go to an amusement park, and rather than paying $1.50 per ride, and you pay $20 for a card that gives twenty rides. You are about to take your tenth ride. The marginal cost of that tenth ride is a. 0 b. $1.50 c. $2 d. $20 e. The answer depends on the benefits received.

The AD-AS model consists of the: A) aggregate demand (AD) curve only. B) short-run aggregate supply (SRAS) curve only. C) long-run aggregate supply (LRAS) curve only. D) AD, SRAS, and LRAS curves.

The BEST type of negative shock for fiscal policy to respond to is a negative shock to: A) aggregate demand. B) short-run aggregate supply. C) the LRAS curve. D) inflation.

The Earned Income Tax Credit makes the U.S. federal income tax: A) more regressive. B) more progressive. C) flatter. D) irrelevant to most taxpayers except for the rich.

The Fed can increase the money supply by: A) selling government bonds. B) decrease the interest paid on reserves held by banks. C) increase the interest paid on reserves held by banks. D) sell corporate bonds in lagging sectors of the economy.

The Fed lends to banks: A) on a regular basis as a way to increase the money supply. B) only in dire emergencies to avoid insolvency. C) as an attempt to limit the number of new loans extended by banks. D) as a way of earning profits, which in turn are passed on to the federal government.

The Federal Funds rate is the: A) interest rate banks pay when they borrow directly from the Fed. B) overnight lending rate on loans from one major bank to another. C) interest rate on short-term Treasury securities. D) ratio of reserves to deposits.

The Federal Reserve can influence the economy by shifting: A) the AD curve. B) the SRAS curve. C) the LRAS curve. D) the AD, SRAS, and LRAS curves.

The Federal Reserve's influence over _____ is more potent than its control over _____. A) expectations; aggregate supply B) expectations; the money supply C) the money supply; expectations D) aggregate supply; aggregate demand

The Industrial Revolution was in large part due to: A) the economies of scale realized from mass production techniques. B) increased education. C) the discovery of large supplies of natural resources. D) the cooperation of governments across the world.

The Lender of Last Resort characteristic of the Fed: A) allows the Fed to lend to financial intermediaries during financial crises. B) is buying and selling of government bonds to increase or decrease the money supply. C) is raising or lowering the interest rate paid on reserves to encourage lending. D) is buying long-term government bonds.

The Social Security system redistributes income from: A) low-wage workers to high-wage workers. B) people with longer life expectancies to people with shorter life expectancies. C) women to men. D) people with shorter life expectancies to people with longer life expectancies.

The Solow growth model features _____ returns to physical capital A) diminishing B) constant C) increasing D) no

The U.S. income tax system is: A) proportional. B) progressive. C) regressive. D) marginal.

The US government buys 100 F-35 jets. The F-35 manufacturer pays its employees. These employees spend income on goods and services. The firm from which the employees buy the products and services pay their employees. This sequence of events illustrates a) the acceleration effect. b) the chain effect. c) the bandwagon effect d) inflation effect. e) the multiplier effect.

The actual rate of unemployment is equal to _____. a) cyclical plus frictional plus structural unemployment b) frictional plus technical unemployment c) cyclical plus structural unemployment only d) cyclical unemployment only e) frictional plus structural unemployment

The aggregate demand curve shows the relationship between real GDP growth and the: A) actual inflation rate. B) expected inflation rate. C) long-run inflation rate. D) interest rate.

The amount by which the money supply expands with each additional dollar in reserves is the: A) reserve ratio. B) prime rate. C) fractional reserve. D) money multiplier.

The annual difference between federal spending and revenues is called the: A) national deficit. B) national debt. C) debt held by the public. D) debt-to-GDP ratio.

The average annual rate of growth of real GDP in the United States has fluctuated around ____ for the last 60 years. A) 1.2% B) 3.2% C) 5% D) -1%

The benefits of trade include: I. greater productivity due to specialization. II. higher output due to specialization according to comparative advantage. III. increased welfare when preferences differ. A) I and II only B) II and III only C) I and III only D) I, II, and III

The consumer price index measures the prices of: A) all final goods bought by American consumers. B) a basket of goods bought by a typical American consumer. C) intermediate as well as final goods. D) introductory, intermediate, and final goods.

The crowding-out effects of fiscal policy are smaller if: A) real GDP growth is above the economy's long-run potential rate. B) nominal wages and prices are flexible. C) the economy is in a recession caused by low aggregate demand. D) the spending multiplier is also smaller.

The demand curve: a) shows how much buyers are willing and able to buy at different prices. b) is the amount that buyers are willing and able to buy at a particular price. c) shows how much sellers are willing and able to sell at different prices. d) is the amount that sellers are willing and able to sell at a particular price.

The figure below represents the US market for washing machines before the trade (Pd=2) after opening to free trade (Pw=1), and after the US government placed a 25% tariff on imports of washing machines (Pw+tariff=1.25). After opening for free trade, how many washing machines will they import, and how many washing machines will they import after the tariff? a. 250;750 b. 500;250 c. 750;500 d. 900; 500 e. 1000;750

The figure below represents the US market for washing machines before the trade (Pd=2) after opening to free trade (Pw=1), and after the US government placed a 25% tariff on imports of washing machines (Pw+tariff=1.25). How much revenue will the government collect? a. 0 b. 125 c. 187 d. 225 e. We need elasticity of demand and supply to calculate revenues.

The figure below represents the US market for washing machines before the trade (Pd=2) after opening to free trade (Pw=1), and after the US government placed a 25% tariff on imports of washing machines (Pw+tariff=1.25). What is consumer surplus: (1) without free trade, (2) after opening to free trade, and after there are 25% tariffs placed on imports? a. A │ A+C+D+E+F+H+K+L+M │ A+C b. A+C+D+E │ A+C+D+E+F+H+K+L+M │ A+C c. A │ A+C+D+E+F+H+K+L+M │ A+C+D+E d. A │ A+C+F │ A+C e. A+B │ A+B+C+D+E+F+H+K+L+M │ A+B+C+D+E+N

The figure below represents the US market for washing machines before the trade (Pd=2) after opening to free trade (Pw=1), and after the US government placed a 25% tariff on imports of washing machines (Pw+tariff=1.25). Who will bear the burden of this tariff(i.e., pay the tariff) a. foreigner producers. b. Domestic producers. c. Domestic consumers. d. Government. e. None of the above.

The first major event of the Great Depression was: A) a series of bank failures. B) a fall in investment spending. C) a stock market crash. D) the Smoot-Hartley tariffs.

The following graph should be used to answer the next two questions; it refers to demand and supply for NBA basketball games. The solid lines refer to the original demand and supply; the dotted lines to demand and supply after they have shifted. What does the graph show has happened in the market? a. Demand has increased; supply has decreased. b. Demand has decreased; supply has increased. c. Demand has increased; supply has increased. d. Demand has decreased; supply has decreased.

The following graph should be used to answer the next two questions; it refers to demand and supply for NBA basketball games. The solid lines refer to the original demand and supply; the dotted lines to demand and supply after they have shifted. Which of the following is the most plausible explanation for the changes? a. The price of basketball players rose while the price of basketball fell. b. The price of basketball players rose while the price of NHL hockey games (a substitute) fell. c. The price of basketball players fell while income increased, and NBA basketball is a common good. d. The price of hockey players rose while the cost of basketball jerseys fell.

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. In what year are nominal and real GDP equal? a) 1995 b) 1996 c) 1997 d) 1998 e) Real and nominal GDP are not the same in any year.

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. In what year did real GDP NOT grow? a) 1995 - 1996 b) 1996 - 1997 c) 1997 - 1998 d) Real GDP grew every year. e) Impossible to tell from the information

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What are the values of the GDP deflator for the years 1995 - 1998? a) 100, 101.5, 103.8, 104.8 b) 100, 100.9, 102.4, 104.8 c) 100, 100.9, 103.8, 104.8 d) 99, 100, 101.5, 103.8 e) 99, 100, 100.9, 104.8

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What is the nominal GDP in 1998? a) $17,000 b) $17,250 c) $18,300 d) $18,735 e) $19,170

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What was the rate of inflation (approximately) from 1997 - 1998? a) 0%-There was no inflation during those years. b) 0.9% c) 1.5% d) 2.3% e) 3.1%

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. In what year did real GDP NOT grow? a) 1995 - 1996 b) 1996 - 1997 c) 1997 - 1998 d) Real GDP grew every year. e) Impossible to tell from the information

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What was the real GDP in 1997? a) $17,000 b) $17,250 c) $17,400 d) $18,300 e) $18,735

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What was the rate of inflation (approximately) from 1996 - 1997? a) 0%-There was no inflation during those years. b) 0.9% c) 1.5% d) 2.3% e) 3.1%

The following table contains information about an economy that produces only Speedos and bikinis. Use it to answer the next seven questions. Let the base year be 1995. What was the real GDP in 1997? a) $17,000 b) $17,250 c) $17,400 d) $18,300 e) $18,735

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. Using 2000 as the base year, what are the values of the CPI in 1999, 2000, 2001 and 2002? a) 100, 103.3, 115.4, 116.5 b) 96.8, 100, 111.7, 112.8 c) 96.8, 99.0, 100.7, 111.7 d) 100, 105.4, 111.7, 115.4 e) 96.8, 100, 103.3, 111.7

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What is the cost of the market basket in 2000? a) $180 b) $910 c) $940 d) $1,050 e) $1,060

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What is the cost of the market basket in 2001? a) $250 b) $910 c) $940 d) $1,050 e) $1,060

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What is the cost of the market basket in 2002? a) $300 b) $910 c) $940 d) $1,050 e) $1,060

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What was the rate of inflation from 1999 to 2000? a) 0% b) 1.0% c) 2.3% d) 3.3% e) 5.8%

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What was the rate of inflation from 2000 to 2001? a) 1.0% b) 3.3% c) 5.8% d) 11.7% e) 15.2%

The following table contains information about the prices of goods contained in a market basket. The market basket consists of 10 bags of snack food (Pork Rinds) and 20 bottles of Rogaine. Let the base year be 2000. Use this information to answer the next seven questions. What was the rate of inflation from 2001 to 2002? a) 0% b) 1.0% c) 2.3% d) 3.3% e) 5.8%

The graph above shows the market for a photographic film—use it to answer the next THREE questions. D0 is the fundamental level of demand, and S0 is the fundamental level of supply. D0 is the fundamental level of demand, and S0 is the fundamental level of supply. What would you expect to happen if incomes rise and cameras are a common good? a. Demand to shift to D1. b. Demand to shift to D2. c. Supply to shift to S1. d. Supply to shift to S2. e. Demand to shift to D2 and supply to shift to S2.

The graph above shows the market for a photographic film—use it to answer the next THREE questions. D0 is the fundamental level of demand, and S0 is the fundamental level of supply. D0 is the fundamental level of demand, and S0 is the fundamental level of supply. What would you expect to happen if the price of the chemicals used to make film rises? a. Demand to shift to D1. b. Demand to shift to D2. c. Supply to shift to S1. d. Supply to shift to S2. e. Demand to shift to D1 and supply to shift to S1.

The graph above shows the market for a photographic film—use it to answer the next THREE questions. D0 is the fundamental level of demand, and S0 is the fundamental level of supply. What would you expect to happen if the price and quantity of cameras increase sharply? a. Demand to shift to D1. b. Demand to shift to D2. c. Supply to shift to S1. d. Supply to shift to S2. e. Demand to shift to D2 and supply to shift to S2.

The growth rate of GDP tells how rapidly the country's level of _____ is rising or falling over time. A) spending B) trade activity C) investment D) production

The idea that "people respond to incentives" would lead us to conclude that class attendance would rise: a. if I take attendance and grade on it. b. if I give lots of surprise quizzes. C. if I offer money to students who come to class. d. All of the above.

The idea that "people respond to incentives" would lead us to conclude that the murder rate: a. will rise if harsher penalties are enacted. b. will fall if harsher penalties are enacted. C. would be unaffected by changes in penalties since crimes are committed in moments of passion. d. It depends entirely on the level of penalties enacted.

The implementation lag is likely to be: A) longer for changes in government spending than for changes in taxation. B) shorter for changes in government spending than for changes in taxation. C) indefinitely long for both changes in government spending and changes in taxation. D) similar in length for both changes in government spending and changes in taxation.

The intended effect of expansionary monetary policy is that aggregate demand: A) increases, raising real GDP growth only in the long run. B) increases, raising inflation and real GDP growth in both the short run and the long run. C) increases, raising real GDP growth in the short run, but only inflation rises in the long term. D) remains unchanged while the economy's long-run potential growth rate increases.

The labor force is defined as a) the employed plus the unemployed b) the employed c) the unemployed d) the employed plus the unemployed plus those not in the labor force e) anyone willing to work for minimum wage or less

The largest source of revenue for the U.S. federal government is: A) the corporate income tax. B) the individual income tax. C) excise taxes, such as taxes on gasoline and alcohol. D) Social Security and Medicare taxes.

The law of demand would lead you to expect that if the price of butter goes up: a. people will complain. b. People will no longer buy butter. c. A butter surplus will occur. d. A butter shortage will occur. e. people will buy more margarine.

The main difference between M1 and M2 is that: A) M1 includes some less liquid assets in addition to the assets in M2. B) M1 includes more liquid assets in addition to the assets in M2. C) M2 includes some less liquid assets in addition to the assets in M1. D) M2 includes more liquid assets in addition to the assets in M1.

The main reason for the influence of institutions on the wealth of nations is that good institutions: A) raise people's incentives to build wealth. B) keep the economy in tight control of the government. C) help distribute wealth more evenly among the people. D) allow government to more easily convert private property into collective property.

The market-clearing price is: a. the price at which quantity demanded and quantity supplied are equal. b. the price at which there is neither a shortage nor a surplus. C. the price at which supply and demand curves intersect. d. All of the above.

The monetary base (MB) refers to: A) currency. B) currency plus total reserves held at the Fed. C) currency plus checkable deposits. D) currency, savings deposits, money market mutual funds, and small-time deposits.

The money multiplier equals: A) the amount of money supply divided by the amount of reserves. B) one divided by the difference between the reserve ratio and the amount of deposits. C) one divided by the reserve ratio. D) one divided by the prime interest rate.

The money you pay into Social Security goes to: A) an individual account. B) a trust that earns interest to help pay your benefits. C) pay current beneficiaries. D) the investment fund of your choice.

The most appropriate monetary policy response to an asset price bubble for a central bank is to: A) react to asset price bubbles because they can easily be identified. B) not react to asset price bubbles because its actions will lead to a recession. C) react to asset price bubbles aggressively because they cannot be popped any other way. D) not react to asset price bubbles because monetary policy can affect only aggregate demand, not demand in a specific market.

The most significant benefit of trade comes from allowing people to a. consume things they would not consume otherwise. b. Produce things they would not produce otherwise. c. Get things at a range of possible prices. d. Specialize and thereby increase production and consumption.

The most significant spending component of GDP is: A) consumption. B) investment. C) government spending. D) imports.

The multiplier concept is essential because it shows: A) why fiscal policy is always effective. B) how small changes in government spending may have significant impacts on overall output. C) how changes in taxes are multiplied into more significant government revenues. D) why decreases in the tax rate may increase tax revenues overall.

The natural rate of unemployment is equal to _____. a) 0% b) cyclical unemployment c) cyclical plus frictional plus structural unemployment d) frictional unemployment e) frictional plus structural unemployment

The problem with a fiscal policy that is created because of the recognition, legislative, implementation, effectiveness, and the evaluation and adjustment lags is called: A) crowding out. B) a drop in the bucket. C) a matter of timing. D) a real shock.

Uncertainty always causes: A) investment to increase. B) consumption to increase. C) government spending to increase. D) investment to decrease.

The professional basketball players' union negotiates a contract that dramatically increases all players' salaries. How would this influence the cost to a player of quitting basketball to pursue a career in broadcasting? a. It would increase cost b. It would decrease the cost because the player could make more money in the meantime. c. It would not affect the cost, but it would affect the benefits. d. It would affect neither the benefits nor costs of becoming a broadcaster e. There is not enough information to determine

The quantity demanded of a good or service is the amount that: a) consumers are willing and able to buy at a given price. b) firms are willing to sell during a given period at a given price. c) a consumer would like to buy but might not be able to afford it. d) a consumer needs to consume during a given period.

The quantity exchanged of a good ______ under a binding price ceiling A) rises B) remains the same C) falls D) changes in an indeterminate direction

The real cost of any action: a. depends upon the number of suppliers b. is the cost to the consumer plus the cost to the producer c. is higher when demand shifts d. is the value of the alternative sacrificed e. all of the above

The reserve ratio (RR) is the: A) amount the money supply expands with each dollar increase in reserves. B) overnight lending rate from one major bank to another. C) ratio of deposits to reserves. D) ratio of reserves to deposits.

The short-run aggregate supply curve shows the relationship between the real growth rate and the: A) actual inflation rate. B) expected inflation rate. C) long-run inflation rate. D) real interest rate.

The tax rate paid on an additional dollar of income is the: A) higher tax rate. B) secondary tax rate. C) marginal tax rate. D) reserve tax rate.

The term business fluctuations refer to: A) the different stages of a product cycle. B) changes in the prices of goods and services over time. C) movement in real GDP around its long-term trend. D) the trend in real GDP over a long period of time.

The top 1% of all income earners pay about _____ of all federal taxes in the United States. A) 1% B) 10% C) 25% D) 50%

The total civilian, non-institutionalized adult population (16 and over), according to the BLS, is equal to a) the labor force plus the unemployed b) the employed plus the unemployed plus those not in the labor force c) the employed plus those not in the labor force d) the employed plus the unemployed e) the employed plus those serving in the military

The unemployment rate (as calculated by the BLS) is the a) employed divided by the civilian adult population b) unemployed divided by the labor force c) unemployed divided by the total population d) unemployed divided by the civilian adult population e) unemployed divided by the employed

There is _____ relationship between levels of corruption and living standards in countries around the world. A) a strong positive B) a strong negative C) a weak D) no

To be considered money, an asset must be: A) backed by gold or other precious metals. B) widely accepted as a means of payment. C) currency. D) issued by the Federal Reserve or a major commercial bank in the United States.

Trade would make both countries better off if Mexico specialized in roses and the U.S. in daffodils. Therefore, a. The US. has an absolute advantage in both products and the comparative advantage in roses. b. The US. has an absolute advantage in both products and the comparative advantage in daffodils. C. The U.S. has an absolute and comparative advantage in both products. d. Mexico has the absolute advantage in roses and the comparative advantage in roses. e. Mexico has a comparative and absolute advantage in both products.

Uncertainty drives people away from: A) liquid assets, and toward investment spending. B) liquid assets, and away from investment spending. C) investment spending, and toward more liquid assets. D) investment spending, and toward less liquid assets.

Unemployment insurance makes payments to: A) only the poor who are out of work. B) all people who are unemployed or who are not working as much as they would like. C) only those who earn above $10,000 per year prior to being unemployed. D) anyone who is out of work and meets the requirements, regardless of income.

Use the graph below to answer the next two questions. At the price of 8, a. quantity supplied is about 20, while the quantity demanded is about 40. b. Quantity supplied is about 40, while the quantity demanded is about 20. c. Quantity supplied and quantity demanded are roughly equal. d. We are above the market-clearing price.

Use the graph below to answer the next two questions. At which price is there excess demand, and at which price is there excess supply? a. At 15, there is excess demand, and at 10, there is excess supply. b. At 15, there is excess demand, and at 8, there is excess supply. c. At 10, there is excess demand, and at ten, there is excess supply. d. At 8, there is excess demand, and at ten, there is excess supply. e. At eight, there is excess demand, and at 15, there is excess supply.

Use this figure to answer the next four questions What quantity would be produced domestically? A) 600 B) 1,400 C) 1,000 D) 800

Use this figure to answer the next four questions. Refer to the figure. What quantity would be traded in a free-trade environment? A) 600 units B) 1,400 units C) 1,000 units D) 800 units

Use this figure to answer the next four questions. What quantity would be imported? A) 600 B) 1,400 C) 1,000 D) 800

Use this figure to answer the next four questions. What quantity would be traded in the absence of any international trade? A) 600 B) 1,400 C) 1,000 D) 800

Use this figure to answer the next three questions. In the figure representing the market for leather, what price would consumers pay for leather in the absence of a tariff or other import restrictions? A) a price less than $50 B) $50 C) a price somewhere between $50 and $100 D) $100

Use this figure to answer the next three questions. (Figure: Costs of Tariffs) Refer to the figure. In the figure representing the market for leather, domestic suppliers are the high-cost producers of leather. However, import restrictions push domestic prices up to $100. Which area represents the value of wasted resources?

Use this figure to answer the next three questions. In the figure representing the market for leather, domestic suppliers are the high-cost producers of leather. However, import restrictions push the domestic price up to $100. Which area represents the deadweight loss that results?

Use this graph to answer the next 3 questions. Refer to the figure. What is the dollar value of the deadweight loss created as a result of prohibiting trade in this market? A) $2,500 B)$10,000 C) $7,500 D) $5,000

Use this graph to answer the next 3 questions. Refer to the figure. What is the dollar value of the lost consumer surplus as a result of prohibiting trade in this market? A) $26,000 B) $28,000 C) $30,000 D) $36,000

Use this graph to answer the next 3 questions. Refer to the figure. What is the dollar value of wasted resources as a result of prohibiting trade in this market? A) $30,000 B) $5,000 C) $2,500 D) $22,500

Use this graph to answer the next three questions. Assume P* is a price ceiling. If it is imposed: a. some consumer surplus becomes producer surplus. b. some producer surplus becomes consumer surplus. c. both producer and consumer surplus increase. d. consumer surplus increases by areas G+H while producer surplus shrinks by area G.

Use this graph to answer the next three questions. If P* in the graph above is a price ceiling, the distance between Q3 and Q1 is _________, while if P* is instead a price floor, that distance is ________. a. excess supply that will be competed away, a shortage. b. Consumer surplus, producer surplus. C. overproduction, underproduction. d. A shortage, excess demand that will be competed away. e. exports, imports.

Use this graph to answer the next three questions. Some producer surplus becomes consumer surplus. As a result: a. total surplus rises. b. Total surplus falls. c. The total surplus remains the same. d. There is not enough information to say.

Wealthier countries have: A) more conflicts, such as riots and civil wars. B) higher infant mortality rates. C) fewer educational opportunities. D) more material goods.

What agency is in charge of calculating/reporting the U.S. GDP? a) National Bureau of Weights and Measures b) Bureau of Economic Analysis c) Bureau of Economic Statistics d) Bureau of Labor Statistics e) Ministry of Truth and Information

What are the major limits to fiscal policy? A) crowding out, a matter of timing, and real shocks B) poor information, the multiplier effect, the bandwagon effect, and election timing C) sticky wages, Ricardian equivalence, recognition lag, and crowding out D) aggregate demand deficiency, unemployed resources, long-run expenses, and implementation lag

What are the three primary sources of funds for the U.S. federal government? A) individual income taxes, corporate income taxes, and Social Security and Medicare taxes B) interest on government bonds, corporate income taxes, Social Security and Medicare taxes C) interest on government bonds, individual income taxes, Social Security and Medicare taxes D) interest on government bonds, individual income taxes, corporate income taxes

What are the two main measures of inflation used in the U.S.? a) The Consumer Price Index and the GDP deflator b) Real Interest Rate and the Producer Interest rate c) The Producer Price Index and real GDP d) The Retailer Price Index and the GDP Index e) The Nominal Price Index and the Real Price Index

What category are children under 16 placed in by the BLS when calculating the unemployment figures? a) employed, as long as they are working somewhere part-time b) unemployed c) not in the labor force d) they are not counted at all e) underemployed

What category are retired people placed in by the BLS when calculating unemployment figures? a) Employed b) Unemployed c) not in the labor force d) they are not counted at all e) under-employed

What does the term 'full-employment' mean? a) It means that everyone in the country has a job and is working b) It means that all adults in the country have a job and are working c) It means that cyclical unemployment is 0, but we still have frictional and structural d) It means that the country is currently producing as many goods and services as it sustainably can e) Both c and d are true

What happens in the market for tires when the cost of aluminum (an input to automobile production) increases? a. Demand increases. b. Demand decreases. c. Supply increases. d. Supply decreases. e. None of the above, because aluminum is not used in tires.

What is a reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand shock? A) The Fed might run out of money. B) Banks usually do not do what the Fed demands of them. C) The Fed must operate in real-time when a lot of the data about the state of the economy are unknown. D) The economy responds to the Fed's actions with no lag.

What is the Fisher effect? A) the tendency of nominal interest rates to fall with higher expected inflation rates B) the tendency of nominal interest rates to rise with higher expected inflation rates C) the tendency of real interest rates to fall with higher expected inflation rates D) the tendency of real interest rates to rise with higher expected inflation rates

What is the difference between nominal and real GDP? a) There is no difference - they are the same. b) Real GDP is affected by price changes, while nominal GDP is not. c) Real GDP is affected by quantity changes, while nominal GDP is not. d) Nominal is affected by quantity changes, while real GDP is not. e) Nominal GDP is affected by price changes, while real GDP is not.

What is the overnight lending rate from one bank to another? A) the Federal Funds rate B) the Federal Reserve rate C) the money market rate D) the money multiplier rate

What is the ultimate cause of economic growth among countries around the world? A) luck B) culture C) geography D) Luck, culture, and geography are all the ultimate causes of growth.

What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future? A) defense B) environmental protection C) education D) health care

What part of the money supply does the Fed have direct control? A) the monetary base B) M1 C) the monetary base plus M1 D) M2

What percent of the federal budget is spent on foreign aid? A) 1% B) 4% C) 15% D) 41%

What would happen in the market for interior house paint if the price of paintbrushes falls while the price of wallpaper (a substitute) rises? a. The equilibrium price would increase, but the impact on quantity would be uncertain. b. The equilibrium price would decrease, but the impact on quantity would be uncertain. c. Both equilibrium price and quantity would increase. d. The equilibrium quantity would increase, but the impact on price would be uncertain. e. The equilibrium quantity would decrease, but the impact on price would be uncertain.

When a country adopts free trade and becomes a net exporter of a good, that good: A) becomes cheaper for domestic consumers. B) becomes more expensive for domestic consumers. C) does not change in price. D) may get cheaper or more expensive for domestic consumers.

When a price ceiling is in effect: A) suppliers get too strong a signal from demanders about their needs. B) demanders have no incentive to signal their needs to suppliers. C) all demander needs are met at the lower price, so there is no need to signal anything to suppliers. D) demanders cannot signal their needs to suppliers.

When airlines increase the number of safety inspections of their engines, a. There is no cost since more safety benefits everybody. b. There is no cost for society as a whole since only a few firms are affected. c. There is a cost only if firms are forced to cancel flights. d. There is a cost because firms and consumers must give up something in return.

When consumers receive tax rebates and use them to pay down debt rather than to increase spending: A) the resulting fiscal stimulus will be much larger than the initial tax rebate. B) the resulting fiscal stimulus will be much smaller than the initial tax rebate. C) the resulting fiscal stimulus will be the same size as the initial tax rebate. D) it is impossible to say whether the resulting fiscal stimulus will be larger or smaller.

When economists speak of "long-run economic growth," they mean increasing the: A) real GDP of a country. B) per capita real GDP of a country. C) geographic size of a country. D) population of a country.

When economists state that "money is neutral," they mean that the: A) The overall price level does not affect consumers; only relative prices do. B) The overall price level does not affect people's inflation expectations. C) money supply does not affect inflation or nominal GDP. D) money supply does not affect real GDP or unemployment.

When fiscal policy is done through tax cuts instead of spending increases: A) individuals rather than government employees will decide how the stimulus gets spent. B) there are likely to be many "bridges to nowhere." C) the resulting spending won't pass the cost-benefit test. D) the resulting fiscal stimulus will be spent by the government.

When hit with a negative real shock, the Fed, wishing to respond, must choose between a growth rate that's too: A) low and an unemployment rate that's too high. B) low and an inflation rate that's too high. C) high and wages that are too low. D) high and a savings rate that's too low.

When policy-makers and the news reports that "the economy contracted", this means that during the last period ____. a) real GDP increased slower than the potential rate or decreased b) real GDP decreased c) nominal GDP decreased d) nominal GDP per person decreased e) inflation decreased

When policy-makers and the news reports that "the economy is expanding", this means that during the last period ____. a) nominal GDP increased b) inflation increased c) real GDP increased d) real GDP increased at the potential rate or faster e) real GDP per person increased

When someone becomes unemployed because of a slowdown in the growth of real GDP, we say in general that the person is ____. a) economically unemployed b) cyclically unemployed c) drastically unemployed d) frictionally unemployed e) structurally unemployed

When someone becomes unemployed because their current set of skills are no longer in demand by society, then we say that the person is ___. a) technically unemployed b) frictionally unemployed c) cyclically unemployed d) structurally unemployed e) up the proverbial creek.

When someone is unemployed because they haven't found the job that best matches their skills, then we say in general that the person is ___. a) cyclically unemployed b) technically unemployed c) frictionally unemployed d) structurally unemployed e) no longer in the labor force

When someone wants a full-time job, but can only find part-time work, we say the person is a) under-employed b) a discouraged worker c) cyclically unemployed d) structurally unemployed e) not counted by the BLS

When the Fed buys short-term Treasury securities, short-term interest rates: A) fall. B) rise. C) could rise or fall. D) stay the same.

When the Fed increases the money supply to counteract a negative real shock: A) growth usually returns to the level it was before the shock. B) half of the increase is seen in growth and half in inflation. C) inflation increases a lot, and growth increases a little. D) growth remains stuck at the level of the negative real shock.

When the Fed sells government bonds in the open market: A) the monetary base increases and interest rates decrease. B) the monetary base decreases and interest rates increase. C) both the monetary base and interest rates decrease. D) both the monetary base and interest rates increase.

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock, the growth rate of real GDP: A) will increase more than the inflation rate. B) will increase less than the inflation rate. C) and the inflation rate will both increase by the same amount. D) and the inflation rate will both decrease by the same amount.

When the U.S. Treasury borrows, the borrowing is managed by the: A) Treasury itself. B) Senate Banking Committee. C) Comptroller of the Currency. D) Federal Reserve.

Which asset is the LEAST liquid? A) a mortgage on a house B) recyclable aluminum cans C) knowledge of how to tie one's shoe D) a checkable deposit

Which best describes the growth process from its ultimate to its immediate causes? A) incentives→institutions → factors of production → real GDP per capita B) institutions →incentives→factors of production →real GDP per capita C) factors of production →incentives→ institutions → real GDP per capita D) factors of production →institutions incentives → real GDP per capita

Which describes one of the difficulties that make it hard for the Fed to implement monetary policy effectively? A) The Fed has too much data to sort through quickly. B) Congress must approve all monetary policies before being implemented. C) The Fed's control of the money supply is incomplete and subject to uncertain lags. D) The effects of monetary policy always offset those of fiscal policy.

Which government agency is in charge of calculating and reporting the nation's unemployment figures? a) Bureau of Labor Statistics b) Bureau of Employment c) Ministry of Truth and Information d) Department of Health and Public Service e) Bureau of Economic Analysis

Which is NOT a function of the Federal Reserve? A) serving as the lender of last resort B) regulating the U.S. financial system C) controlling the U.S. money supply D) providing loans to small businesses

Which is used most often by the Federal Reserve to control the money supply? A) open market operations B) serving at the lender of last resort C) altering the reserve ratio D) paying interest of reserves

Which of the following best illustrates the concept of comparative advantage? a. Your lawyer processes his legal briefs in order to get them done quickly. b. A world-renowned chef hires someone to cook meals for his family. c. A firm builds a second factory after the demand for its product increases. d. A doctor takes accounting courses to help her manage the business end of her practice. e. All of the above.

Which of the following causes a shift of the AD curve to the right? A) an increase in income taxes B) an increase in consumer confidence C) an increase in import growth D) an increase in interest rates

Which of the following is NOT a component of aggregate demand? a) consumer expenditure b) investment expenditure c) stocks and bonds d) government expenditure e) net exports

Which of the following is NOT an argument against international trade? A) It is wrong to trade with nations that use child labor. B) International trade reduces the number of jobs in the United States. C) International trade leads to lower prices for domestic consumers. D) Specific key industries should remain at "home" for the interest of national security.

Which of the following is NOT consistent with points along with the long-run aggregate supply curve? A) Real GDP is growing at its long-run potential growth rate. B) All prices are fully flexible. C) All real factors of production are being fully utilized. D) Real output growth is negatively related to inflation.

Which of the following is TRUE about the economic policy of "protectionism"? A) It raises the prices of foreign goods in domestic markets. B) It restricts competitive forces in domestic markets. C) It can be achieved through quotas and tariffs. D) All of the statements are correct.

Which of the following is a finished good and should be included in GDP? A) antivirus software preloaded on computers B) computer chips C) notebook computers D) power cords packaged with new computers

Which of the following limits the effectiveness of the fiscal policy? A) crowding out B) the multiplier effect C) the big bucket effect D) free-riding behavior

Which of the following shows the stages of the business cycle in correct order? a) expansion, contraction, trough, peak b) trough, contraction, expansion, peak c) expansion, trough, contraction, peak d) peak, contraction, trough, expansion e) contraction, peak, expansion, trough

Which of the following would be included as part of the labor force? a) a full-time student who is not working or looking for work b) someone retired who is not working or looking for work c) someone let go from work and who is not looking for work d) someone let go from work and who is looking for work e) All of the above are included in an economy's labor force

Which of these would help a government fight a recession? A) raising taxes B) cutting taxes C) cutting spending D) paying down the national debt

Which panel in the figure shows the expected relationship between real GDP growth and unemployment? A) Panel A B) Panel B C) Panel C D) Panel D

Which statement about Medicare and Medicaid is NOT correct? A) Medicaid covers the poor and disabled. B) Medicare reimburses the elderly for much of their medical care. C) An individual must be at least 65 years old to qualify for Medicare. D) Social Security and Medicare together make up about 15% of the federal budget.

Which statement best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being? A) GDP per capita is negatively related to measures of societal well-being. B) GDP per capita is positively related to measures of societal well-being. C) There is no relationship between GDP per capita and measures of societal well-being. D) The relationship between GDP per capita and societal well-being is positive at times and negative at times.

Which statement is TRUE regarding the effects of monetary policy when a real shock occurs? A) Monetary policy can always be used to simultaneously achieve a high real growth rate and lower the inflation rate. B) Monetary policy cannot simultaneously achieve a high real growth rate and lower the inflation rate. C) Monetary policy can be used to change only the real growth rate, but not the inflation rate. D) Monetary policy can be used to change only the inflation rate, but not the real growth rate.

Which statement is TRUE? A) It may be difficult for the Fed to print enough money to have a noticeable effect on the economy. B) The effectiveness lag associated with monetary policy is likely to be near zero. C) Monetary policy has no recognition lag. D) By the time the fiscal policy is in place, it is likely that macroeconomic conditions may have changed entirely.

Which statement is correct? A) M1 is always larger than M2. B) M2 is always larger than M1. C) M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions. D) M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions.

Which statement pertains to the condition of crowding out? A) The government cuts spending by $300 million, resulting in a decrease in consumption by $500 million. B) The government cuts taxes, resulting in an increase in investment spending by $270 million. C) The government increases spending by $300 million on new highway construction, resulting in an increase in consumption by $500 million. D) The government raises taxes by $300 million to finance new spending on highway construction, resulting in a decrease in consumption spending by $270 million.

Which transaction will be included in GDP? A) the purchase of a used bicycle on Ebay B) the purchase of a home built in 1957 C) the purchase of a real estate agent's services D) the purchase of 1,000 shares of IBM stock

Why does quantity demanded fall as price rises? a. Because the supply decreases. b. Because demand decreases. c. Because of BOTH supply and demand decrease. d. Because people switch to substitutes.

Why is a monetary policy not fully effective in combating a negative supply shock? A) The Fed has no tools that stimulate an economy after a negative supply shock. B) When countering a negative supply shock, Fed action will cause deflation. C) When countering a negative supply shock to reduce inflation, Fed action will raise unemployment. D) When countering a negative supply shock to reduce unemployment, Fed action will raise inflation.

Without trade restrictions, the price of tennis shoes is $30, and with trade restrictions, the price of tennis shoes is $45. The difference between the two prices reflects: A) per-unit profits. B) the value of the extra resources for the domestic production of an additional pair of tennis shoes. C) the gain in consumer surplus from free trade. D) All of the answers are correct.

You miss the last train home on New Year's Eve. After walking for an hour, you spot a taxi. Its driver wants to charge $150 to take you home, though the ride usually costs $30. You are furious, but feel you have no other option and accept the deal. Finding the taxi: a. has made you better off, and the driver worse off. b. has made you worse off, and the driver better off. C. has made both you and the driver better off. d. has made both you and the driver worse off. e. has made the driver better off but left your well-being unchanged.

You observe that a hot dog vendor lowers his prices in the late afternoon. Which of the following is a plausible economic rationale? a. The opportunity cost of hot dogs has fallen. b. People are less likely to buy hotdogs in the late afternoon than earlier in the day. c. The marginal benefits of alternative activities (for example, meeting friends for a drink) rise in the afternoon. d. All of the above.

You say that expanding the food stamp program is the right thing to do, and I reply that expanding the program will lead to less spent in other areas, we are unlikely to have a meeting of minds because: a. you are emphasizing marginal benefits, and I am emphasizing marginal costs. b. much of the food stamp program is already a sunk cost. c. the benefits and costs of food stamps are likely to be challenging to calculate. d. you are making a normative argument, and I am making a positive argument. e. you are reasonable, and I am aggravating

Your comparative advantage as a house painter (as opposed to as a student) a. increases during exam week. b. increases during the summer vacation. c. It depends only on how good you are with a paintbrush. d. All of the above.

_____ and _____ are some of the essential aggregate demand shifters, and affecting _____ is one of the Federal Reserve's most potent tools. A) Money; resources; the money supply B) Fear; confidence; market confidence C) Interest rate; exchange rate; currency control D) Exports; imports; the exchange rate

_____ is a significant reduction in the rate of inflation, while _____ is a reduction in the level of prices. A) Stagflation; deflation B) Disinflation; stagflation C) Deflation; disinflation D) Disinflation; deflation

_____ refers to the Federal Reserve's purchase of longer-term government bonds or other securities. A) An open market purchase B) An open market sale C) Quantitative easing D) Quantitative tightening

ECON 2002.01 Macroeconomics Final

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