Econ Midterm 3

In performing which of its primary functions does money solve the problem of the double coincidence of wants? A) unit of account B) money supply C) medium of exchange D) barter system E) store of value

C) medium of exchange

Suppose that the government increases spending more than is necessary to close a recessionary gap. What is the MOST likely result? A) Inflation will increase. B) The price level will decline. C) The equilibrium real GDP will fall. D) The equilibrium real GDP will fall short of potential GDP.

A) Inflation will increase.

Automatic stabilizers include A) changes in induced taxes and changes in needs-tested spending. B) changes in the federal funds interest rate brought about by Fed policy. C) changes in induced taxes and changes in discretionary spending. D) changes in discretionary spending and changes in needs-tested spending. E) increases or decreases of tax rates and changes in needs-tested spending.

A) changes in induced taxes and changes in needs-tested spending.

Which of the following items is included in the M1 money supply? A) coins in a Pepsi vending machine, waiting to be used as change B) a $5,000 student loan granted to a U.S. citizen C) $1,500 in a student's saving account D) a $5,000 line of credit on a newly graduated student's credit card E) $10 bills in the Bank of America

A) coins in a Pepsi vending machine, waiting to be used as change

An increase in the income tax ________ potential GDP by shifting the labor ________ curve ________. A) decreases; supply; leftward B) decreases; demand; leftward C) increases; demand; rightward D) decreases; supply; rightward E) increases; supply; rightward

A) decreases; supply; leftward

In a recession, needs-tested spending ________ and induced taxes ________. A) increases; decrease B) increases; increase C) decreases; increase D) increase; do not change E) decreases; decrease

A) increases; decrease

When you use currency to buy lunch, money is performing which function? A) medium of exchange B) unit of purchase C) unit of currency D) store of value E) barter token

A) medium of exchange

Neoclassical economists argue that expansionary fiscal policy: A) will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes. B) is not effective because it causes higher interest rates and crowds out investment spending. C) is effective, but contractionary fiscal policy is not. D) is more effective than expansionary monetary policy.

A) will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes.

Which of the following statements is correct? A)A tax increase shifts the aggregate demand curve leftward. B)An increase in people's expected future income shifts the aggregate demand curve leftward. C)An increase in potential GDP shifts the aggregate demand curve rightward. D)The higher the price level, the larger is the quantity of real GDP demanded. E)An increase in exports shifts the aggregate demand curve leftward.

A)A tax increase shifts the aggregate demand curve leftward.

If firms' expectations about the future become pessimistic so that they think future profits will be lower, then A)aggregate demand decreases and the AD curve shifts leftward. B)the aggregate demand curve does not shift, but potential GDP decreases. C)the quantity of real GDP demanded decreases, and there is a movement up along the AD curve. D)the quantity of real GDP demanded increases, and there is a movement down along the AD curve. E)aggregate demand increases and the AD curve shifts rightward.

A)aggregate demand decreases and the AD curve shifts leftward.

A recessionary gap occurs when ________ so that real GDP is ________ potential GDP. A)aggregate demand decreases; less than B)aggregate supply decreases; less than C)aggregate demand increases; greater than D)potential GDP decreases; greater than E)aggregate supply increases; less than

A)aggregate demand decreases; less than

All of the following shift the aggregate demand curve to the right EXCEPT A)an increase in taxes. B)an expansion of the global economy. C)an increase in expected future profit. D)an increase in foreign income. E)an increase in government expenditure.

A)an increase in taxes.

Which of the following does NOT shift the aggregate supply curve? A)an increase in the price level B)an increase in energy prices C)an increase in the nominal wage rate D)a decrease in the capital stock E)None of the above are correct because they all shift the aggregate supply curve.

A)an increase in the price level

Potential GDP A)is independent of the price level. B)increases as the price level increases because firms supply more goods and services. C)decreases as the price level increases because people demand fewer goods and services. D)never changes. E)might either increase or decrease as the price level increases, depending on whether aggregate demand increases or decreases.

A)is independent of the price level.

If the economy is at macroeconomic equilibrium, then real GDP A)might be equal to, greater than, or less than potential GDP. B)must be great than potential GDP. C)must equal potential GDP. D)must be less than potential GDP. E)cannot be compared to potential GDP.

A)might be equal to, greater than, or less than potential GDP.

In the short-run, an increase in the price of raw materials will ________ the price level and________ real GDP. A)raise; decrease B)raise; increase C)lower; increase D)lower; decrease E)raise; not change

A)raise; decrease

Because of the existence of the aggregate demand multiplier, a $10 billion change in expenditure A)shifts the aggregate demand curve by more than $10 billion. B)changes the slope of the aggregate demand curve so it is steeper. C)changes the slope of the aggregate demand curve so it is less steep. D)shifts the aggregate demand curve by $10 billion. E)shifts the aggregate demand curve by less than $10 billion.

A)shifts the aggregate demand curve by more than $10 billion.

If real GDP is greater than potential GDP, then to restore equilibrium, ________ and the price level________. A)the aggregate supply curve shifts leftward; rises B)the aggregate demand curve shifts rightward; falls C)potential GDP increases; falls D)the aggregate demand curve shifts leftward; rises E)the aggregate supply curve shifts rightward; falls

A)the aggregate supply curve shifts leftward; rises

A reason why an increase in the price level decreases the quantity of real GDP demanded is that A)the price of domestic goods and services increases relative to foreign goods and services. B)the buying power of money increases. C)potential GDP decreases. D)the inflation rate decreases. E)the real interest rate falls.

A)the price of domestic goods and services increases relative to foreign goods and services.

The aggregate supply curve slopes ________ because a ________ in the price level brings a________ in the real wage rate. A)upward; rise; fall B)upward; fall; fall C)downward; rise; rise D)downward; fall; rise E)upward; rise; rise

A)upward; rise; fall

The law-making time lag is best described as the time that it takes A) Congress to REALIZE that new laws must be passed to change taxes or spending. B) Congress to PASS laws needed to change taxes or spending. C) a jury to render a verdict. D) a newly passed law to become the norm in daily lives. E) the President to sign a bill sent from Congress.

B) Congress to PASS laws needed to change taxes or spending.

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result? A) Equilibrium real GDP will be more than anticipated. B) The economy will move into a recession. C) The economy will generate a larger inflationary gap than anticipated. D) This will not have any adverse effects on the economy, since inflation has been abated.

B) The economy will move into a recession.

The federal budget is defined as A) an annual statement of what policy actions the U.S. government has pursued. B) an annual statement of expenditures and tax revenues of the U.S. government. C) a monthly statement of whether the U.S. government is in deficit or surplus. D) a monthly statement of expenditure laws passed by the U.S. government. E) an annual statement of U.S. government violations of international laws.

B) an annual statement of expenditures and tax revenues of the U.S. government.

During a recession, unemployment benefit payments increase without the need for any government action. This increase is an example of A) automatic monetary policy. B) automatic fiscal policy. C) discretionary fiscal policy. D) discretionary monetary policy. E) government expenditure but it is not an example of either discretionary or automatic policy.

B) automatic fiscal policy.

The crowding out effect refers to the ________ from ________ in the government's budget deficit. A) decrease in consumption; a decrease B) decrease in employment; an increase C) increase in consumption; an increase D) decrease in investment; an increase E) increase in investment; an increase

B) decrease in employment; an increase

If fiscal stimulus creates a large budget ________, then in the long run economic growth ________. A) deficit; increases B) deficit; decreases C) surplus; increases D) surplus; decreases E) None of the above answers is correct.

B) deficit; decreases

After passage of the stimulus in 2009 government borrowing _____, and interest rates_____. A) increased; increased to record levels B) increased; remained very low C) decreased; increased D) decreased; decreased

B) increased; remained very low

The largest category of commercial banks' assets is A) reserves. B) loans. C) securities. D) checkable deposits. E) currency.

B) loans.

Keeping $20 in currency to be able to buy gasoline, money is performing which function? A) symbol of fiat B) store of value C) unit of account D) barter mechanism E) medium of exchange

B) store of value

When we keep part of our wealth in a bank checking account, we are using money as a ________ because ________. A) unit of account; we are holding the money to exchange for goods at a later time B) store of value; we are holding the money to exchange for goods at a later time C) medium of exchange; we are holding the money to gain interest earned D) unit of currency; we have agreed upon the value of the money with bank E) barter token; we are holding the money to exchange for goods at a later time

B) store of value; we are holding the money to exchange for goods at a later time

Induced taxes are defined as taxes A) we are forced to pay for services from the government. B) that vary with real GDP. C) that rise in recessions and fall in expansions. D) that are avoided with the use of legal tax shelters. E) enacted by Congress that explicitly state the amount to be paid.

B) that vary with real GDP.

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve? A)a change in monetary policy B)a change in the price level C)a change in government expenditures on goods and services D)a change in foreign incomes E)a change in expectations about the future

B)a change in the price level

If the costs of production decrease, there is A)a decrease in the quantity of real GDP supplied and a movement down along the AS curve. B)an increase in aggregate supply and the AS curve shifts rightward. C)an increase in the quantity of real GDP supplied and a movement up along the AS curve. D)a decrease in aggregate supply and the AS curve shifts leftward. E)an increase in aggregate supply and the AS curve shifts leftward.

B)an increase in aggregate supply and the AS curve shifts rightward.

If real GDP is less than potential GDP, then the money wage rate ________, and aggregate supply________ so that the price level ________. A)rises; increases; falls B)falls; increases; falls C)does not change; increases; falls D)falls; decreases; rises E)rises; decreases; rises

B)falls; increases; falls

In the short run, a rise in the price level brings a ________ in the real interest rate that ________investment, bringing ________ in the quantity of real GDP demanded. A)fall; decreases; a decrease B)rise; decreases; a decrease C)rise; increases; an increase D)fall; increases; an increase E)rise; decreases; an increase

B)rise; decreases; a decrease

Which statement is most correct about the types of deposits a commercial bank can accept? A) A commercial bank does not accept deposits but sells shares. B) A commercial bank can accept loan deposits, reserve deposits, and checkable deposits. C) A commercial bank accepts checking, savings, and time deposits. D) A commercial bank can only accept checking deposits from commercial enterprises. E) A commercial bank accepts savings and time deposits, but not checking deposits.

C) A commercial bank accepts checking, savings, and time deposits.

Which statement is CORRECT? A) Automatic stabilizers indicate deliberate action by policy makers. B) Discretionary fiscal policy shows automatic adjustments without any specific effort by policy makers. C) Discretionary fiscal policy indicates deliberate action by policy makers. D) Automatic stabilizers are risky to use and sometimes can get the economy destabilized.

C) Discretionary fiscal policy indicates deliberate action by policy makers.

If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change? A) M1 will increase, and M2 will increase. B) M1 will remain the same, and M2 will increase. C) M1 will decrease, but M2 will remain the same. D) Both M1 and M2 will remain the same. E) M2 will decrease by $100.

C) M1 will decrease, but M2 will remain the same.

Which statement about money is most correct? A) Money is a new invention and only includes dollar bills and coins. B) Money has been around for a long time and only includes dollar bills and coins. C) Money has been around for a long time and can include anything that is accepted as a means of payment. D) Money is a new invention and can include anything that is accepted as a means of payment. E) Money has been around for a long time and only includes checking and savings accounts.

C) Money has been around for a long time and can include anything that is accepted as a means of payment.

Which of the following best describes a double coincidence of wants? A) Neither buyer wants a good. B) Two buyers want the same good. C) You have what another wants and you want what they have. D) A buyer and a seller rather than two buyers or two sellers must meet. E) None of the above answers is correct.

C) You have what another wants and you want what they have.

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called A) an automatic fiscal policy. B) induced tax policy. C) a discretionary fiscal policy. D) an annual tax policy. E) a discretionary revenue policy.

C) a discretionary fiscal policy.

For an asset to be a "means of payment," the asset A) is valuable and backed by the government. B) requires a double coincidence of wants. C) can be used to settle a debt. D) is valuable and backed by gold. E) must be used when bartering.

C) can be used to settle a debt.

Which of the following is money? A) e-checks B) debit card C) checkable deposit D) credit card E) checks

C) checkable deposit

Some argue that budget deficits will lead to reduced private spending because: A) the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. B) budget deficits will reduce interest rates on savings and decrease consumers' wealth. C) consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. D) the government will have to increase transfer payments to finance the deficit.

C) consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes.

Barter requires the A) use of fiat money as a medium of exchange. B) the triple non-coincidence of wants. C) exchange of goods and services directly for other goods and services. D) use of commodity money as a medium of payment. E) use of money as a unit of account.

C) exchange of goods and services directly for other goods and services.

An example of automatic fiscal policy is A) the Federal Reserve reducing interest rates as economic growth slows. B) a change in taxes that has no multiplier effect. C) expenditure for unemployment benefits increasing as economic growth slows. D) the federal government expanding spending at the Department of Education. E) Congress passing a tax rate reduction package.

C) expenditure for unemployment benefits increasing as economic growth slows.

Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits A) i only B) ii only C) i and ii D) ii and iii E) i, ii, and iii

C) i and ii

Credit cards are i. a generally accepted form of payment and therefore part of M1. ii. included in M1 because you write a check to pay your monthly bill. iii. a means of borrowing money. A) i only B) ii only C) iii only D) i and ii E) i and iii

C) iii only

Discretionary fiscal policy is defined as fiscal policy A) initiated by a Presidential proclamation. B) left to the discretion of military authorities. C) initiated by an act of Congress. D) with multiplier effects. E) triggered by the state of the economy.

C) initiated by an act of Congress.

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that A) government programs are always expansionary. B) during a recession, politicians prefer increases in government spending over decreasing taxes. C) it is difficult to know whether real GDP is above or below potential GDP. D) government programs automatically move real GDP away from potential GDP. E) economic forecasts consistently underestimate the impact of fiscal policy.

C) it is difficult to know whether real GDP is above or below potential GDP.

The functions of money are A) medium of exchange, the ability to buy goods and services, and the ability to pay off debts. B) credit cards, checking accounts, currency, and coins. C) medium of exchange, unit of account, and store of value. D) medium of exchange, the ability to buy goods and services, and checking accounts. E) store of value, use as a barter mechanism, and unit of account.

C) medium of exchange, unit of account, and store of value.

What two parts of the government determine the federal budge? A) the President and the Federal Reserve B) the Federal Reserve and the FOMC C) the Congress and the President D) the Congress and the Federal Reserve E) the U.S. Treasury and the Federal Reserve

C) the Congress and the President

When we put a price tag on goods and services, we are using money as a A) means of payment. B) barter token. C) unit of account. D) store of value. E) medium of exchange.

C) unit of account.

Which of the following decreases aggregate demand and shifts the AD curve leftward? A)an increase in quantity of money B)a tax cut C)an interest rate hike D)a decrease in potential GDP E)an increase in government expenditures on goods and services

C)an interest rate hike

Increases in the quantity of money can start a ________ inflation and an increase in government expenditure can start a ________ inflation. A)demand-pull; cost-push B)cost-push; demand-pull C)demand-pull; demand-pull D)cost-push; cost-push E)None of the above is correct because increases in the quantity of money are necessary to continue an inflation but cannot start an inflation.

C)demand-pull; demand-pull

A combination of recession and inflation is called A)an expansion. B)a recession. C)stagflation. D)depression. E)a business cycle.

C)stagflation.

When OPEC nearly tripled the price of oil in late 1973 A)the U.S. price level fell because production became too expensive. B)U.S. real GDP increased as profits by oil producers increased. C)the U.S. price level rose and real GDP decreased. D)both U.S. real GDP and the price level increased. E)U.S. real GDP did not change although the price level rose.

C)the U.S. price level rose and real GDP decreased.

If there is an increase in expected future income, then A)the aggregate demand curve shifts leftward. B)the aggregate demand curve becomes steeper. C)the aggregate demand curve shifts rightward. D)there is a downward movement along the aggregate demand curve. E)there is an upward movement along the aggregate demand curve.

C)the aggregate demand curve shifts rightward.

According to the AS-AD model A)the AS curve is always equal to potential GDP. B)the aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment. C)the equilibrium is where the AS curve crosses the AD curve, but the amount of real GDP at this point is not always equal to potential GDP. D)changes in the amount of potential GDP is the only factor that shifts both the aggregate supply curve and the aggregate demand curve. E)the aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation.

C)the equilibrium is where the AS curve crosses the AD curve, but the amount of real GDP at this point is not always equal to potential GDP.

The aggregate demand curve illustrates the relationship between A)the price level and the potential quantity demanded of real GDP. B)the price level and the quantity of goods supplied by firms. C)the price level and the quantity of goods demanded by households, firms, government, and foreigners. D)the price level and the potential demand for real GDP. E)the real wage rate and the hours of labor demanded by firms.

C)the price level and the quantity of goods demanded by households, firms, government, and foreigners.

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income A) weakens the incentive to work. B) decreases potential GDP. C) increases potential GDP because people work more to pay the higher taxes. D) Both answers A and B are correct. E) None of the above is correct.

D) Both answers A and B are correct.

Do economists believe that the budget should be balanced each fiscal year? A) Yes, a budget should be balanced annually; otherwise persistent budget deficits can cause havoc in the economy. B) Yes, as the law states that both the federal and state budgets should always be balanced. C) Yes, since the balanced budget multiplier is larger, so it makes the economy grow faster. D) No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.

D) No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.

Do automatic fiscal stabilizers eliminate business cycles? A) No, they increase the likelihood that a business cycle occurs. B) No, they make business cycle fluctuations more severe. C) No, because they have no effect if the business cycle is the result of some unanticipated D) Yes E) No, but they do moderate business cycles.

D) Yes

Government expenditure ________ change potential GDP and taxes ________ change potential GDP. A) can; cannot B) cannot; can C) cannot; cannot D) can; can E) None of the above answers is correct.

D) can; can

M1 is composed of A) currency inside of banks, traveler's checks, and government-issued checks. B) checkable deposits owned by individuals and businesses, saving deposits, and certificates of deposit. C) currency held by individuals and businesses, traveler's checks, and the credit line on credit cards. D) currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses. E) traveler's checks, credit cards, and e-cash.

D) currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses.

Suppose the government increases spending to fund tuition assistance for qualified college students. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand. A) increase; contractionary; decrease B) decrease; contractionary; increase C) increase; expansionary; increase D) decrease; expansionary; increase

D) decrease; expansionary; increase

The U.S. dollar is called A) commodity money, because it is convertible into gold. B) frail money because wear and tear ruins paper bills. C) convertible money because the government stands ready to convert it into gold or silver. D) fiat money because the law decrees it is money. E) faith money.

D) fiat money because the law decrees it is money.

The use of discretionary fiscal policy is hampered by i. difficulty of estimating the level of potential GDP. ii. lack of accuracy of economic forecasts. iii. the small impact tax cuts and increases in government expenditure have on aggregate demand. A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii

D) i and ii

Transfer payments include i. social security benefits. ii. medicare and medicaid benefits. iii. unemployment benefits. A) i only. B) ii only. C) iii only. D) i, ii, and iii. E) i and iii only.

D) i, ii, and iii.

Automatic stabilizers are defined as A) actions taken by an act of Congress to stabilize the economy. B) discretionary policy taken to stabilize the economy. C) actions taken by the President without Congressional consent to stabilize the economy. D) policy that stabilizes without the need for action by the government. E) policy that has no multiplier effects.

D) policy that stabilizes without the need for action by the government.

At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately A)$26,000. B)$20,000. C)$30,000. D)$15,400. E)$12,780.

D)$15,400.

If European economies enter a recession A)U.S. aggregate demand decreases and the U.S. AD curve shifts rightward. B)the quantity of real GDP demanded in the United States decreases and there is a movement down along the U.S. AD curve. C)the quantity of real GDP demanded in the United States increases and there is a movement up along the U.S. AD curve. D)U.S. aggregate demand decreases and the U.S. AD curve shifts leftward. E)U.S. aggregate demand increases and the U.S. AD curve shifts rightward.

D)U.S. aggregate demand decreases and the U.S. AD curve shifts leftward.

If the price level increases, there is ________ the AD curve and the quantity of real GDP demanded________. A)a movement downward along; increases B)no change in; does not change C)a movement upward along; increases D)a movement upward along; decreases E)a leftward shift in; decreases

D)a movement upward along; decreases

At the beginning of 2022, a country is at full-employment. During 2022, oil-producing countries decrease oil production leading to much higher oil prices. The higher oil prices can A)increase aggregate supply and lead to an expansion. B)decrease aggregate demand and lead to a higher price level. C)increase aggregate demand and lead to an expansion. D)decrease aggregate supply and lead to a stagflation. E)decrease aggregate demand and lead to a stagflation.

D)decrease aggregate supply and lead to a stagflation.

Stagflation is defined as a period when real GDP ________ and the price level ________. A)decreases; decreases B)is constant; rises rapidly C)increases; increases D)decreases; increases E)increases; decreases

D)decreases; increases

An increase in ________ increases potential GDP and ________ aggregate supply. A)the money wage rate; increases B)technology; decreases C)the money price of oil; decreases D)technology; increases E)the money wage rate; decreases

D)technology; increases

When the price level rises and the money wage rate does not change A)profits fall and more businesses fail. B)the quantity of real GDP supplied decreases as more businesses fail and potential GDP does not change. C)existing businesses do not change their level of output. D)the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change. E)the quantity of potential GDP increases because the quantity of real GDP supplied increases.

D)the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change.

What is a problem with barter that makes it so difficult to use? A) Individuals have to produce something to trade with. B) Barter omits the store of value role for money. C) Barter is very efficient but illegal because it avoids taxation. D) Barter requires use of only fiat money. E) Barter requires a double coincidence of wants.

E) Barter requires a double coincidence of wants.

In December 2009, currency was $400 billion, traveler's checks were $5 billion; checkable deposits owned by individuals and businesses were $600 billion, saving deposits were $2,000 billion, time deposits were $1,500 billion; and money market funds were $1,200 billion. What was the M1 in December 2009? A) M1 = $405 billion B) M1 = $3,505 billion C) M1 = $3,005 billion D) M1 = $3,500 billion E) M1 = $1,005 billion

E) M1 = $1,005 billion

If Rob deposits $300 in currency into his savings account at Bank of America A) M2 decreases. B) M1 does not change. C) M2 increases. D) M1 and M2 both increase. E) M1 decreases.

E) M1 decreases.

The unit of account is defined as A) an object that is accepted in return for goods and services. B) the exchange of goods and services directly for other goods and services. C) barter. D) the medium of exchange. E) an agreed upon measure for stating prices of goods and services.

E) an agreed upon measure for stating prices of goods and services.

If tax revenues are $230 billion and the government's outlays are $235 billion, then the budget. A) deficit is $5 billion and government debt will remain the same. B) surplus is $230 billion and the budget deficit is $235 billion. C) surplus is $5 billion and government debt will increase by $5 billion. D) deficit is $5 billion and government debt will decrease by $5 billion. E) deficit is $5 billion and government debt will increase by $5 billion.

E) deficit is $5 billion and government debt will increase by $5 billion.

The store of value function is defined as the A) pricing of goods and services in one measure. B) use of money as a medium of exchange. C) double coincidence of wants that is used in the debate over barter versus money. D) exchange of goods and services directly for other goods and services. E) holding of money from one transaction to be used later in another transaction.

E) holding of money from one transaction to be used later in another transaction.

Discretionary fiscal policy is handicapped by A) economic forecasting, law-making time lags, and induced taxes. B) automatic stabilizers, law-making time lags, and potential GDP estimation. C) automatic stabilizers and induced taxes. D) induced taxes and automatic stabilizers. E) law-making time lags, estimation of potential GDP, and economic forecasting.

E) law-making time lags, estimation of potential GDP, and economic forecasting.

An increase in taxes on labor income shifts the labor supply curve ________, and the ________. A) rightward; before-tax wage rate rises B) leftward; before-tax wage rate does not change C) leftward; after-tax wage rate does not change D) leftward; after-tax wage rate rises E) leftward; after-tax wage rate falls

E) leftward; after-tax wage rate falls

The national debt is the amount A) by which government outlays exceed tax revenue in a given year. B) by which government tax revenue exceed outlays in a given year. C) of all future entitlement spending. D) of government outlays summed over time. E) of debt outstanding that arises from past budget deficits.

E) of debt outstanding that arises from past budget deficits.

Needs-tested spending is defined as A) taxes paid by those qualified by their income. B) spending that increases in expansions and decreases in recessions. C) spending by Congress on its own perks of office. D) spending by the President on the White House. E) spending on programs for people qualified to receive benefits.

E) spending on programs for people qualified to receive benefits.

If you use a check to pay your monthly rent A) you have used money because the landlord accepted it as a means of payment. B) the check becomes money when it arrives at the landlord's bank. C) the check is considered money because you received something in return. D) the check is not money because it is not part of M1. E) the check is not money because it is just an instruction to your bank to make a payment.

E) the check is not money because it is just an instruction to your bank to make a payment.

Debit cards and e-checks are NOT money because A) not all banks offer them and not all businesses accept them. B) they can be forged easily. C) they can fail their purpose of being mediums of exchange as a result of technical difficulties. D) they are not regulated by the government. E) they are just instruments to transfer money between people.

E) they are just instruments to transfer money between people.

In order for the United States to use discretionary fiscal policy to deal with a recessionary gap A) the President's and Congress's economic advisors must agree on the proper government programs to slash. B) the public must elect members of Congress that understand economics. C) the President and Congress must agree on which taxes to hike. D) since 2002, the President has been given the authority to make up to a 10 percentage point change in government expenditure programs. E) time must pass in order for Congress to decide what taxes and government programs to

E) time must pass in order for Congress to decide what taxes and government programs to

Money is used as a ________ when you visit the local farmers' market and compare prices across different vendors. A) means of payment B) measure of barter C) store of value D) medium of exchange E) unit of account

E) unit of account

If you shop for a car online and compare car prices across dealerships, money is functioning as a A) means of payment. B) barter mechanism. C) medium of exchange. D) store of value. E) unit of account.

E) unit of account.

Which of the following does NOT shift the aggregate demand curve? A)a change in fiscal policy B)a change in foreign income C)a change in monetary policy D)a change in expectations about the future E)a change in the money wage

E)a change in the money wage

During the late 1960s, U.S. defense spending increased as the United States fought in Vietnam. This increase in government expenditure on goods and services most likely created A)a decrease in aggregate supply. B)a decrease in aggregate demand because consumers' expenditures decreased. C)an increase in potential GDP. D)a recessionary gap. E)an inflationary gap.

E)an inflationary gap.

crisis in the Middle East drastically raises the price of petroleum. If the aggregate demand curve does not shift, then aggregate supply will ________, real GDP will ________, and the price level will ________. A)increase; increase; increase B)decrease; remain the same; decrease C)increase; remain the same; increase D)remain the same; increase; increase E)decrease; decrease; increase

E)decrease; decrease; increase

If oil prices increase, then in the short run, real GDP will ________ and the price level will________. A)decrease; fall B)not change; rise C)increase; rise D)increase; fall E)decrease; rise

E)decrease; rise

Reasons that the recession of 2008-2009 did not become a depression include i. The Fed bailed out troubled financial institutions. ii. The government aggressively balanced its budget. iii. The government increased its expenditures, which increased aggregate demand. A)i only B)ii only C)iii only D)i and ii E)i and iii

E)i and iii

A rise in the price level ________ the buying power of money and ________ the quantity of real GDP demanded. A)raises; decreases B)does not affect; increases C)does not affect; does not change D)lowers; increases E)lowers; decreases

E)lowers; decreases

Which of the following does NOT affect potential GDP? A)the quantity of land and natural resources B)the quantity of capital and human capital C)the quantity of labor employed D)the amount of entrepreneurial talent available E)the quantity of money

E)the quantity of money

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)