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Which of the following statements is true?

The government finances its debt by issuing Treasury bills

Unexpected inflation

When prices increase without people knowing they were gong to borrowers benefit, lenders lose

If the required reserve ratio is 10%, how much can a bank lend out if its deposits total $2 million?

$1.8 million

A bank has capital of $200 and a leverage ratio of 5. If the value of the bank's assets declines by 10 percent, then its capital will be reduced to

$100

Factor market=

GDP

28. Increases in the real per capita income of a country are most closely associated with increases in which of the following? a. The labor force b. The price level c. The money supply d. Productivity e. Tax rates

Productivity

PPI

Producer price index

Aggregate Output

What we produce

"Near money"

can reduce the money multiplier effect.

One shift ______ cause another

cannot

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

assets

Checkable deposits are

included in M1.

A marginal change is one that

incrementally alters an existing plan

Cash held by a bank in its vault is a part of the bank's

reserves.

If country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alpha's currency will have depreciated relative to Beta's currency

31. If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alpha's currency will have depreciated relative to Beta's currency.

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following?

Alpha: 1 ton of steel; Beta: 2 tons of steel

If country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alphas currency will have depreciated relative to Beta's currency

Which of the following statements is true?

An aggregate production function indicates how output per worker depends on the level of physical capital per worker, human capital per worker, and the state of the technology

Which of the following changes would cause an economy's aggregate demand curve to shift to the right?

An increase in autonomous consumption spending

Following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?

An increase in government transfer payments

Which of the following will cause the US dollar to depreciate relative to the euro?

An increase in household income in the US

Which of the following will cause the United States dollar to depreciate relative to the Euro?

An increase in household income in the United States

Which of the following will most likely occur as a result of an increase in labor productivity in an economy?

An increase in output and a decrease in inflation

Which of the following best illustrates an improvement in a country's standard of living?

An increase in real per capita gross domestic product

Which of the following will lead to a decrease in a nation's money supply?

An increase in reserve requirements

Expansionary fiscal policy will most likely result in...

An increase in the marginal propensity to consume or an increase in the nominal interest rates

Which of following policy measures could prevent "crowding out" in the short run?

An increase in the money supply by the Federal Reserve

Which of the following is true when the velocity of money falls?

An increase in the money supply will have less effect on nominal gross national product

Country A can produce either 4 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true? (A) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cocoa. (B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (C) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (D) Country A has a comparative disadvantage in the production of both goods. (E) Neither country has a comparative advantage in the production of either good.

Country/Number of Computers/Units of Steel A/100/100 B/20/80 The table above indicates the production alternatives of two countries, A and B, which produce computers and steel using equal amounts of resources. If both countries always produce at full employment, which of the following statements must be correct? (A) Mutually advantageous trade can occur between the two countries when 1 unit of steel from Country A is exchanged for 2 computers from Country B. (B) Mutually advantageous trade can occur between the two countries when 2 units of steel from Country B are exchanged for 1 computer from Country A. (C) Country A has an absolute and comparative advantage in the production of computers, and Country B has an absolute and comparative advantage in the production of steel. (D) Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel. (E) Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel.

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

$1,000.

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of

$400

Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

$460.

If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by

$480

If the required reserve ratio is 10%, the increase in the money supply that results from $500,000 of new deposits equals

$5,000,000

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

$5,000.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of

$5,000.

What is the total change in the money supply if the reserve requirement is 10% and deposits rise by $5,000?

$50,000

A high marginal propensity to consume implies which of the following?

A low marginal propensity to save

Which of the following would cause an inward shift in the supply of loanable funds?

A decline in the trade deficit

Which of the following factors can cause a decline in aggregate demand?

A decrease in consumer spending

Which of the following will cause an increase in aggregate demand

A decrease in income taxes

Which of the following will cause an increase in aggregate demand?

A decrease in income taxes

Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation?

A decrease in reserves in the banking system.

Which of the following policies would provide expansion during a recession with the smallest change in interest rates?

A decrease in taxes and an open-market purchase of government securities by the central bank

Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates?

A decrease in taxes and an open-market purchase of government securities by the central bank

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?

A decrease in taxes of $100

Which of the following would cause the short-run aggregate supply curve to shift to the right?

A decrease in the expected price level.

Which of the following will most likely lead to a decrease in inflationary expectations?

A decrease in the money supply

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

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

Which of the following most undermines the ability of a nations currency to store value?

A decrease in the purchasing power of the currency

Which of the following would best explain an inward shift of the production possibilities curve?

A decrease in the quality of human capital

Which of the following is most likely to occur if the Federal Reserve engages in open market operation to reduce inflation?

A decrease in the reserves in the banking system

The required reserve ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply?

A decrease of $5 million

A depreciation of Country A's currency

Suppose the Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following will occur in the foreign exchange market?

A depreciation of Country A's currency

A commercial bank's ability to create money depends on which of the following?

A fractional reserve banking system

The best measure of your increase or decrease in purchasing power as a result of an investment is the nominal interest rate.

False

The graph below shows an example of "bad deflation."

False

The higher the interest rate, the larger will be the amount of money demanded for transaction purposes.

False

The supply of money increases when the public buys government securities from commercial banks.

False

The theory of implementing fiscal policy always works in practice.

False

There is an inverse relationship between a country's standard of living and its rate of savings and investment.

False

If interest rates are expected to rise, the value of assets will expected to also rise.

False.

Real GDP

GDP that is not adjusted for price inflation Real GDP allows you to accurately compare by setting everything at an equal price. The price change in nominal GDP. To find real gap, all of the prices are set at the price of the base year Real GDP can count bad things like money spent on natural disaster relief that makes our economy look good

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP)?

GDP will decrease by a maximum of $180 million.

What would be the effect of an increase in government spending of $50 million?

GDP would increase by more than $50 million.

Which of the following represents a form of commodity money?

Gold coins

Which of the following combinations of changes in government spending an d taxes is necessarily expansionary?

Government Spending: Increase Taxes: Decrease

An appropriate fiscal policy to combat a recession would be to increase which of the following?

Government spending

A country's government runs a budget deficit when which of the following occurs in a given year?

Government spending exceeds tax revenues

A country's government runs a budget deficit when which of the following occurs in a given year?

Government spending exceeds tax revenues.

Which of the following groups would most likely gain from unanticipated inflation?

Individuals who have borrowed money at fixed interest rates

In the long run, what is the effect of an increase in the money supply?

Inflation

What is the long-run effect of monetary policy accommodation by the Federal Reserve?

Inflation

Inflation rate-increase, Value of the Peso-Depreciate

Assue that the world operates under a flexible exchange rate system. if the central bank of Mexico increases it's money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways?

Inflation rate: increase International Value of Peso: Depreciate

A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?

Inflationary expectations

A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?

Inlflationary expectations

For an economy that's operating inside its production possibilities curve, which of the following is true?

It can increase the production of both goods

54. For an economy that is operating inside its production possibilities curve, which of the following is true? a. It can increase the production of both goods. b. Its population is growing faster than the economy's ability to increase production. c. It is using all available resources efficiently. d. It cannot move to a point on the production possibilities curve with available technology. e. It lacks the resources to increase production beyond its current output.

It can increase the production of both goods.

WOTF is true about the marginal propensity to consume?

It determines the size of the simple spending mulitiplier.

Which of the following is true about marginal propensity to consume?

It determines the size of the simple spending multiplier

Which of the following his true of the quantity of money demanded?

It falls when interest rates rise, because the opportunity cost of holding money increases

Which of the following is true of the opportunity cost of holding cash?

It increases as the interest rate rises

Which of the following is true of the opportunity cost of holding cash?

It increases as the interest rate rises.

According to the new classical macroeconomists, how does an increase in the price level affect the level of output?

It increases output because firms initially mistake an increase in the overall price level with an increase in demand for their goods.

Which of the following statements is true of unanticipated inflation?

It increases the economic well-being of net debtors

Which of the following statements is true of unanticipated inflation?

It increases the economic well-being of net debtors.

Which of the following is NOT an argument for maintaining a positive rate of inflation?

It increases the variability of relative prices.

Which of the following is true of the Phillips curve?

It is downward sloping in the short run, but is vertical in the long run

Which of the following features does not make gold a good medium of exchange?

It is indivisible.

Which of the following is true about the national debt of the United States?

It is the accumulation of past and current budget deficits and surpluses

Which of the following is true of the long-run phillips curve?

It is vertical at the natural rate of unemployment

What effect does expansionary fiscal policy have on aggregate demand?

It shifts the aggregate demand curve outward.

Which of the following is true of a horizontal aggregate supply curve?

It suggests that increases in output can occur without increases in price levels.

Which of the following best explains why the Federal Reserve reduced the required reserve ratio in the 1990s?

It wanted to stimulate the economy, which was in a recession.

Which of the following is true of the Phillips curve?

It's downward sloping in the short run, but vertical in the long run

The idea that economic downturns result from an inadequate aggregate demand for goods and services is derived from the work of which economist?

John Maynard Keynes

Which of the following correctly expresses the labor supply equation?

L = f (P − Pe )

An increase in which of the following would cause an increase in aggregate supply?

Labor productivity

When the central bank sells government bonds on the open market, which of the following will most likely increase

Nominal interest rates

When the central bank sells government bonds to the open market, which of the following will most likely increase?

Nominal interest rates

Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?

Nominal interest rates: Increase Bond Prices: Decrease

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

Nominal national income

In the long run, an increase in AD due to an expansion in the money supply will increase-

Nominal output and price level

The short run aggregate supply curve would be vertical if-

Nominal wages adjust immediately to changes in the price level

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease?

Purchases of government bonds by the central bank (expansionary monetary policy)

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

Output will increase and price level is indeterminate

Suppose that a national government increased deficit spending on good and services, increasing its demand for loanable funds. in the long run, this policy would most likely result in which of the following changes in this country?

Real interest rates increase, while investment decreases

If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways?

Real output has no change, price level increases

What effect would a decrease in aggregate demand have on output, given the presence of automatic stabilizers?

Output would fall but by less than it would without stabilizers.

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and price level would occur in the long run?

Output- increase Price Level -decrease

The counselor price index (CPI) is criticized for-

Overstating the true burden of inflation because it doesn't recognize consumers ability to substitute goods and services as prices change

Which of the following individuals is considered officially unemployed?

Pat, who recently left a job to look for a different job in another town

Maximum of Business Cycle graph

Peak

Which of the following will occur when the real interest rate rises?

People are more willing to forgo spending in order to save.

The diagram above shows the production possi-bilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT: DOC

Point X represents the most efficient combination of the two goods that can be produced by this economy.

IN the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP)?

Price Level would increase and the Real GDP would increase

In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP) ?

Price level - increase. Real GDP - increase

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?

Price will increase to eliminate the shortage and restore equilibrium

What is the effect on prices and output if people recognize that an increase in government spending will have to be paid for by an increase in taxes?

Prices and output will not change.

Which of the following best describes stagflation?

Prices rise and output decreases

What is the long-run effect on the real economy of an increase in the money supply?

Prices rise, and the level of output returns to its equilibrium level.

What is the likely effect of an increase in government spending if prices and wages are very flexible?

Prices will rise, and output will remain unchanged

If expectations are fully rational, what will be the effect of an increase in the money supply?

Prices will rise, and output will remain unchanged.

What would happen if the government cut taxes to stimulate aggregate demand during a period of stagflation?

Prices, output, and employment would all rise.

Capital

Productive physical things (not money) ie: people, factories

Increases in the real per capita income of a country are most closely associated with increases in-

Productivity

As a component of aggregate demand, investment refers to the-

Purchase of new equipment and additional inventories

If a certain combination of goods or services lies outside the production possiblities curve of an economy, which of the following is true?

Resources are not available to achieve that combination of goods or services.

Which of the following has been most important in driving long-run economic growth?

Rising labor productivity or output per worker

If a central bank significantly increases its sales of government bonds, is it most likely responding to which of the following?

Rising price levels

If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following?

Rising price levels

The economist most associated with the new classical macroeconomic theory is

Robert Lucas.

In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the comparative advantage in lawn mowing?

Ron in washing, David in mowing

In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?

Ron in washing, neither in mowing

If AD is growing faster than long run aggregate supply, the federal reserve is most likely to-

Sell securities on the open market

Which of the following government policies can reduce the rate of inflation in the short run?

Selling bonds on the open market

(Would be a graph with this q) Starting with equilibrium point R, which shifts in long run and short run impact of a demand pull inflation-

Short run: r to m, long run: r to n

Which of the following would be the initial impact of an economy if wages were to increase more than worker productivity?

Short-run Aggregate supply curve would shift to the left, increasing the price level

Price ceilings create

Shortage

Discouraged Worker

Someone who has given up looking for a job due to not being able to find one. This REMOVES them from the labor force and thus can make the unemployment rate look LOWER than it actually is

Underemployed Worker

Someone working somewhere that doesn't match the maximum potential or output they could produce ie: CEO working at a Walmart

An increase in which of the following would be most likely to increase long-run growth?

Subsidies to businesses for purchases of capital goods

Prices of related goods (shifter of demand)

Substitutes- goods that can replace one another (i.e. iPhones and Androids). When the price of one good increases, the demand for the other increases as well. Complements- goods that you tend to buy and use at the same time (i.e. hamburger meat and buns). when the price of one of the goods goes up, the demand for the other decreases because people don't want to buy expensive products.

Assume that Canadian consumers increase their demand for Mexican financial assets. How would the international supply of Canadian dollars, the value of the Mexican peso relative to the Canadian dollar, and Canadian net exports to Mexico change?

Supply of Canadian Dollars: increase Value of Peso: Increase Canadian Net Exports: Increase

If Country X imposes a tariff on its imports, how will the supply of its currency and its exchange rate be affected in foreign exchange markets?

Supply-decrease, Currency-Appreciate

The federal budget deficit increased substantially under which of the following administrations?

The Reagan Administration

What is the long-run effect on the short-run aggregate supply (SRAS) curve when the money supply increases?

The SRAS curve shifts inward as expectations catch up with actual movements in the price level.

From one year to the next, inflation rises from 4 to 5 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change?

The appointment of a new Fed chair increases expected inflation.

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?

The automatic stabilizing effect of fiscal policy will be eliminated

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

a unit of account.

When economists say that money serves as a store of value, they mean that it is

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

The concept of derived demand is described by which of the following? a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors. b) If the salaries of basketball players increase, the quantity of basketball players demanded will decrease. c) An increase in the income of consumers will increase the demand for opera tickets. d) An increase in the demand for movie tickets will decrease the demand for video rentals. e) A decrease in the price of movie tickets will increase the demand for movie tickets.

a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors.

Which of the following statements has to be true in a perfectly competitive market? a) A firm's marginal revenue equals price. b) A firm's average total cost is above price in the long run. c) A firm's average fixed cost rises in the short run. d) A firm's average variable cost is higher than price in the long run. e) Large firms have lower costs than small firms.

a) A firm's marginal revenue equals price

Which of the following inevitably causes a shift in the market demand for workers with a certain skill? a) An increase in the demand for goods produced by these workers b) A decrease in tax rates on the income of these workers c) An increase in the equilibrium wages received by these workers d) An increase in the supply of these workers e) The creation of a federally subsidized program to train new workers

a) An increase in the demand for goods produced by these workers

Which of the following events will cause the demand curve for hamburgers to shift to the right? a) An increase in the price of pizza, a substitute for hamburgers b) An increase in the price of french fries, a complement to hamburgers c) An increase in the price of hamburgers d) A decrease in the price of hamburgers e) A decrease in the cost of producing hamburgers

a) An increase in the price of pizza, a substitute for hamburgers

A rightward shift of the short-run Phillips curve is most likely due to

an increase in the expected rate of inflation

Which of the following actions by the Federal Reserve would reduce the money supply?

an increase in the interest rate paid on reserves

Increasing the money supply in an expanding economy will most likely cause

an increase in the price level.

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

an increase in the price of grapes, an input to jelly

According to the graph, the movement from i0 to i1 represents

an increase in the quantity of money demanded as a result of falling interest rates.

Suppose that the government decerase taxes and at the same time the central bank decrease the discount rate. The combined actions will result in :

an increase in the real gross domestic product and an indeterminate change in the interest rate

All of the following changes will shift the investment demand curve to the right EXCEPT

an increase in the real interest rate

All of the following changes will shift the investment demand curve to the right EXCEPT:

an increase in the real interest rate

Which of the following will lead to a decrease in a nation's money supply?

an increase in the reserve requirements

If business leaders in Great Britain become more confident in their economy, their optimism will induce them to increase investment, causing the British pound to ________ and pushing the British trade balance toward ________.

appreciate, deficit

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's average total cost of producing 3 units of output? a) $48.00 b) $16.00 c) $14.00 d) $13.50 e) $7.00

b) $16.00

Opportunity Cost

every choice you make you lose something in return the next best option ie: $100 dollars will buy me either mexican food, bonefish, movie and froyo, or the melting pot. when i choose bonefish, i give up all the other options that the money couldve brought me

Holding other things constant, an increase in a nation's interest rate reduces

domestic investment and the net capital outflow

If the interest rate is zero, then $100 to be paid in ten years has a present value that is

exactly $100

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

excess reserves.

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and the following, except

exchange rate.

When the Federal Reserve increases the money supply, it ________ aggregate demand and moves the economy along the Phillips curve to a point with ________ inflation and ________ unemployment.

expands, higher, lower

Increasing government spending is an example of

expansionary fiscal policy.

Effects of government policy on structural unemployment

due to regulations on things like logging, there are a limited number of jobs that could be expanded if there wasn't policy.

A student who attends college would pay $10,000 annually for tuition, books, and fees. If the student next best alternative is to work and earn $15,000 a year, the opportunity of a year in college would be equal to a) zero, since the lost opportunity to earn income is offset by the opportunity to attend college b) $5,000 representing the difference between forgone income and college costs c) $10,000, since opportunity costs include only actual cash outlays d) $15,000 representing forgone income, since the costs of tuition, books, and fees will be more than offset by additional income earned after graduation e) $25,000, representing the sum of tuition, books, fees, and forgone income

e) $25,000, representing the sum of tuition, books, fees, and forgone income

For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the firm to maximize profits? Price of Labor Price of Capital a) $2 $5 b) $3 $20 c) $10 $10 d) $2 $25 e) $60 $100

e) $60; $100

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is a) 5.00 b) 11.67 c) 13.33 d) 15.00 e) 20.00

e) 20.00

When a point is located ON the production possibilities curve, it is

efficient in allocation of its resources

Labor force=

employed + unemployed

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

employment does not change; unemployment rate decreases

In an open market, price will always go to __________

equilibrium

If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur?

equilibrium quantity will increase

The theory of comparative advantage implies that Alpha would find it advantageous to

export grain and import steel

The theory of comparative advantage implies that Alpha would find it advantageous to:

export grain and import steel

Comparing the U.S. economy today to that of 1950, one finds that today, as a percentage of GDP,

exports and imports are both higher

Holding other things constant, an appreciation of a nation's currency causes

exports to fall and imports to rise

Financial intermediaries are

financial institutions through which lenders can indirectly provide funds to borrowers.

Banks, mutual funds, insurance companies, and pension funds collectively make up the

financial system.

The benefit of diversification when constructing a portfolio is that it can eliminate

firm-specific risk

According to the theory of efficiency wages,

firms may find it profitable to pay above-equilibrium wages

Tariffs are different from assigned import quotas in that tariffs will:

generate additional revenue for the domestic government

Crowding out occurs when

government borrowing to finance its spending decreases private sector investment

Disinflation

government involvement to bring down the rate of inflation. prices are still increasing, just not by as much

If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will lead to a proportional:

increase in the nominal output

increase net exports; increase aggregate demand

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

increase output and indeterminate price level

With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely

increase real gross domestic product

A discretionary fiscal policy action to reduce inflation in the short run would be to

increase taxes or decrease government spending

A discretionary fiscal policy action to reduce inflation in the short run would be to...

increase taxes or decrease government spending

If the central bank wants to expand aggregate demand, it can ________ the money supply, which would ________ the interest rate.

increase, decrease

If government spending exceeds government revenues, the government runs a deficit, which it can pay for by

issuing Treasury bills.

Which of the following is true of the opportunity cost of holding cash?

it increases as the interest rate rises

The money supply includes all of the following EXCEPT

lines of credit accessible with credit cards

An advance in technology will cause the:

long run aggregate supply curve to shift to the right

An advance in technology will cause the

long-run aggregate supply curve to shift to the right

On a short-run Phillips Curve, high rates of inflation coincide with:

low unemployment rates

An increase in the money supply will

lower interest rates and increase the equilibrium GDP.

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to:

lower the discount rate and buy bonds in the open market to generate an increase in output

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to

lower the discount rate and buy bonds on the open market to generate an increase in output

A civil war abroad causes foreign investors to seek a safe haven for their funds in the United States, leading to ________U.S. interest rates and a ________ U.S. dollar.

lower, stronger

The transaction demand for money is very closely associated with money's use as a

medium of exchange

If Emily writes a check for her groceries, she is using money as a

medium of exchange.

The transactions demand for money is most closely related to money functioning as a

medium of exchange.

The quantity theory of money can explain

moderate inflation, hyperinflation, and deflation.

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways?

money multiplier decreases; money supply decreases

Which of the following is an example of an automatic stabilizer? When the economy goes into a recession,

more people become eligible for unemployment insurance benefits

Suppose the amount of human capital per and the state of the technology are held constant, As physical capital per worker increases, each additional increase in physical capital per worker leads to:

greater increases in output per worker

Because capital is subject to diminishing returns, higher saving and investment does not lead to higher

growth in the long run

According to the short-run Phillips cure, lower inflation rates are associated with:

higher unemployment rates

According to the short-run Phillips curve, lower inflation rates are associated with

higher unemployment rates

The circular-flow diagram illustrates that, in markets for the factors of production,

households are sellers, and firms are buyers

The largest component in the basket of goods and services used to compute the CPI is

housing

Economics is best defined as the study of

how society manages its scarce resources

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate

ignores underemployed and discouraged workers

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate:

ignores underemployed and discouraged workers

It is costly to hold money because

in doing so, one sacrifices interest income.

Assume that the inflation rate of Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market?

The demand curve for the currency will shift to the left and the currency will depreciate

An increase in government budget deficit is most likely to increase which of the following?

The real interest rate

An increase in the government budget deficit is most likely to result in an increase in which of the following?

The real interest rate

If the Federal Reserve sells a significant amount of government securities in the open market, which of the following will occur?

The total amount of loans made by commercial banks will decrease

What would happen if the government decided to reduce inflation by cutting government spending during a period of stagflation?

Unemployment would rise while output and prices would fall.

Which of the following is lily to occur following the depreciation of the United States dollar?

United States exports will increase

Point located to the right of the production possibility curve

Unobtainable

Rational expectations theory suggests that people-

Use all available information in forming their expectations about future inflation

*graph would be pictured* A graph that shows two aggregate demand curves that has a shift to the left from AD1 to AD2 could be cause by-

a decrease in the money supply

The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by

a decrease in the money supply

when an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?

a decrease in the real rate of interest

Suppose country A is experiencing high inflation relative to country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market?

a depreciation of country A's currency

Stagflation is caused by

a leftward shift in the aggregate-supply curve.

A high marginal propensity to consume implies which of the following?

a low marginal propensity to save

What function is money serving when you use it when you go shopping?

a medium of exchange

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange.

What is the LEAST likely to promote economic growth?

an increase in consumption of nondurable goods

An economy that does not have enough money in circulation might experience ____________, and too much money in an economy might cause ___________.

a recession; inflation

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full-employment level?

an increase in government spending

Which of the following best illustrates an improvement in a country's standard of living?

an increase in real per capita gross domestic product

The long-run effect of increasing the money supply is

an increase in the aggregate price level with no change in real output.

In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ________ currency or if banks choose to hold ________ excess reserves.

more, more

An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would

move the economy along the production possibilities frontier

Increases in the real per capita income of a country are most closely associated with increases in which of the following?

productivity

As a component of aggregate demand, investment refers to the

purchase of new equipment and additional inventories

Which of the following actions by the Fed would cause the money supply to increase?

purchases of government bonds from banks

Thomas Robert Malthus believed that population growth would

put stress on the economy's ability to produce food, dooming humans to remain in poverty.

When supply and demand move in opposite directions, __________ is ambiguous

quantity

The purpose of a restrictive monetary policy is to

raise interest rates and restrict the availability of bank credit.

In the short run, government deficit spending will most likely

raise nominal interest rates

In the short run, government deficit spending will most likely...

raise nominal interest rates

An example of fiscal policy is

raising taxes

If aggregate demand is growing faster than long- run aggregate supply, the Federal Reserve is most likely to

sell securities on the open market

If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to

sell securities on the open market

When an adverse supply shock shifts the short-run aggregate-supply curve to the left, it also

shifts the short-run Phillips curve to the right.

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation?

short run r to m; long run r to n

If Jim puts $1.00 into his piggy bank every day, he is using money as a

store of value.

If you place a part of your summer earnings in a savings account, you are using money primarily as a

store of value.

The asset demand for money is most closely related to money functioning as a

store of value.

An industry historically used employees with specific skills. if the industry experiences technological advances the require new skills, there will most likely be :

structural unemployment

Minimum wages and labor unions create

structural unemployment

If a popular TV show on personal finance convinces more Americans about the importance of saving for retirement, the ________ curve for loanable funds would shift, driving the equilibrium interest rate ________.

supply, down

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

supply, lower

An increase in ________ will cause a movement along a given demand curve, which is called a change in ________.

supply, quantity demanded

The equilibrium rate of interest in the market for money is determined by the intersection of the

supply-of-money curve and the total-demand-for-money curve.

Adam Smith's phrase "invisible hand" refers to

the ability of free markets to reach desirable outcomes, despite the self-interest of market participants

In an open economy, national saving equals domestic investment

plus the net outflow of capital abroad

Study the graph below. Supposing the aggregate price level has increased, we can predict a movement from

point A to point C.

Long-run economic growth requires

political stability and respect for property rights

A leftward shift of the long-run aggregate supply curve is most likely consistent with an improvement in a country's standard of living if:

population decreases

When the government runs a budget deficit,

the supply curve for loanable funds shifts inward.

The concept of opportunity cost would no longer be relevant if

the supply of all resources were unlimited

The concept of opportunity cost would no longer be relevant if:

the supply of all resources were unlimited

When supply and demand move in the same direction, _______ is ambiguous

price

According to the new classical view of economics, when the aggregate demand curve shifts outward,

prices and output automatically adjust to the long-run equilibrium

"Bad deflation" refers to the process in which

prices and output fall.

Suppose the government purchased a $10 million satellite. New Keynesian economists predict that

prices would be slow to adjust and create profit opportunities for suppliers.

Newly issued securities are sold on the

primary market.

Crowding out refers to the decrease in

private investment due to increased borrowing by the government.

If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then

private saving is negative, but public saving is positive

The volatile fluctuations of the business cycle occur because of the multiplier effect.

true

Comparative advantage implies that:

two countries should benefit from trade unless each have equal opportunity costs in every good

A $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account.

51. Rational expectations theory suggests that people a. do not estimate future inflation rates because it is impossible to do so b. believe that current inflation should be the same as last year's c. assume that current inflation will be the same for next year d. use all available information in forming their expectations about future inflation e. assume that current inflation will be equal to the average inflation of the past decade

use all available information in forming their expectations about future inflation

Rational expectations theory suggests that people

use all available information in forming their expectations about future inflation

Which of the following is the most fundamental issue that economics addresses?

use of scarce resources

The asset demand for money

varies inversely with the rate of interest.

According to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time?

velocity

Disposable income=

wages + transfers

Throughout U.S. history, what has been the most common cause of substantial increases in government debt?

wars

Suppose Maria, who produces telephones, works 9 hours per day and expects the price of her phones to be $35 each. According to new classical theory, if the actual price of her phones is $40 each, we would expect Maria to

work more than 9 hours per day.

49. The theory of Comparative advantage implies that Alpha would find it advantageous to (A) export grain and import steel (B) export steel and import grain (C) export both grain and steel and import nothing (D) import both grain and steel and export nothing (E) trade 1 ton of grain for 0.5 ton of steel

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run? Nominal Interest Rate / Aggregate Demand (A) Increase / Decrease (B) Increase / increase (C) Increase / Not change (D) Decrease / Decrease (E) Decrease / increase

A depreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? A. United States interest rates B. the United States consumer price index C. demand for the dollar by the United States residents D. exports from the United States E. the tariff on goods imported into the United States

Which of the following policy combinations could reduce a government deficit without changing aggregate demand

An increase in taxes and an increase in the money supply

An increase in the price level will cause-

An increase in the demand for money

An increase in the price level will most likely cause which of the following?

An increase in the demand for money

A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent, the bank's excess reserves equal (A) $10 million (B) $20 million (C) $80 million (D) $100 milion (E) $200 milion

With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by $1,200. Suppose the central bank adjusts the money supply to hold the interest rate constant, investment spending is fixed, and the marginal propensity to consume is 2/3. How large is the increase in aggregate demand?

$3,600

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

$3,750.

A closed economy has income of $1,000, government spending of $200, taxes of $150, and investment of $250. What is private saving?

$300

Over the past century, real GDP per person in the United States has grown about _____ percent per year, which means it doubles about every _____ years.

2, 35

A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent, the bank's excess reserves equal

20 million,

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.

5, 3

If the money supply is $160, the equilibrium interest rate will be

6 percent.

Based on the information in the table above, what is the unemployment rate for Country X?

6.0%

A barter economy is different from a money economy in that a barter economy (A) encourages specialization and division of labor (B) involves higher costs for each transaction (C) eliminates the need for a double coincidence of wants (D) has only a few assets that serve as a medium of exchange (E) promotes market exchanges

A commercial bank's ability to create money depends on which of the following? (A)The existence of a central bank (B) A fractional reserve banking system (C) Gold or silver reserves backing up the currency (D) A large national debt (E) The existence of both checking accounts and savings accounts

A country can have an increased surplus in its balance of trade as a result of (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in capital inflow (E) an appreciating currency

All of the following are components of the money supply EXCEPT (A) paper money (B) gold bullion (C) checkable deposits (D) coins (E) demand deposits

The required reserve ratio covers which of the following types of deposits?

Checking accounts only

Which of the following would reduce the money supply?

Commercial banks sell government bonds to the public.

The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed.

Country B has an absolute advantage and comparative advantage in the production of computers.

Country B has an absolute and comparative advantage in the production of computers.

Which type of unemployment would increase if workers lost their jobs because of the recession?

Cyclical

Which type of unemployment would increase if workers lost their jobs because of a recession?

Cyclical unmeployment

Which of the following is not a motive for holding money?

The depository motive

Which of the following would indicate that economic growth has occurred?

The long-run aggregate supply curve shifts to the right

Minimum of Business Cycle graph

Trough

an increase in the international value of the United States dollar will tend to cause:

United States exports to fall

Which of the following is likely to occur following the depreciation of the United States dollar?

United States exports will increase

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

U.S. Treasury

An increase in the international value of the US dollar will tend to cause

US exports to fall

Which of the following is likely to occur following the depreciation of the US dollar?

US exports will increase

Policies intended to re duce demand-pull inflation are most likely to increase which of the following in the short run?

Unemployment

Which of the following statements concerning economic growth is true?

With long-run economic growth, there is an increase in aggregate supply

Economic Growth is best defined as:

a sustained increase in real gross domestic product per capita

Under the Reagan Administration, businesses received tax incentives for investing. What effect did this policy have on the demand and supply of loanable funds?

Demand for loanable funds shifted to the right, and interest rates increased.

Which of the following would most likely cause the United States economy to fall into a recession? (A) An increase in welfare payments (B) An increase in exports (C) A decrease in savings by consumers (D) A decrease in the required reserve ratio (E) An open market sale by the Federal Reserve

59) A decrease in business taxes would lead to an increase in national income by increasing which of the following? A) The money supply B) Unemployment C) Aggregate demand only D) Aggregate supply only E) Both aggregate demand and aggregate supply

E) Both aggregate demand and aggregate supply

Suppose Bond A has a face value of $1,000, carries a coupon rate of 8%, and matures in one year. If the rate of return on Bond A is 10%, this bond is trading at a premium.

False

When you use money to purchase groceries, money is functioning as a store of value.

False

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

Federal Open Market Committee.

In the U.S. economy, the money supply is controlled by the

Federal Reserve System.

US government bonds are purchased by Japanese investors and this is included in Japan's-

Financial account (formerly called capital accounts)

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

Fiscal Policy - increase taxes. Monetary policy - sell government bonds.

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

Fiscal Policy= increased taxes Monetary Policy= sell government bonds

In the early 1990s, the budget deficit was high, but interest rates were lower than in the 1980s. Which of the following best explains the reason this occurred?

Foreign savings increased, offsetting the effects of the budget deficit.

Domestic spending on all goods and services

GDP consumption, investment, government spending, net exports

When the Japanese car maker Toyota expands one of its car factories in the United States, what is the likely impact of this event on the gross domestic product and gross national product of the United States?

GDP shows a larger increase than GNP

Nominal GDP

GDP that is adjusted for price change

The curve that illustrates the relationship between tax revenue and tax rates is called the

Laffer curve.

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?

Price will increase to eliminate the surplus and restore equilibrium

If an affective price floor is removed from a market for a good, then the price and quantity of the good sold will change in which of the following ways?

Price: decrease Quantity: Increases

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

Prices and quantities both rise

According to classical economists, what happens to prices and output in the long run if there is an autonomous decline in aggregate demand?

Prices fall, and output returns to the full-employment level of output

In the short run, what happens to the level of output and the level of prices as a result of a technological improvement?

Prices fall, and output rises.

Which of the following will not occur during a recession?

Prices rise

Which of the following is not a tool of fiscal policy?

Private investment

Crowding out refers to the decrease in:

Private investment due to increased borrowing by the government

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease?

Purchases of government bonds by the central bank.

In the short run, government deficit spending will most likely

Raise nominal interest rates

Which Federal Reserve action can shift the aggregate demand curve to the left?

Raising the discount rate

If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?

Real GDP rises by 10 percent, while nominal GDP is unchanged

In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways?

Real GDP: no change Price Level: Decrease

Based on the diagram above, what effect will an increase in the world supply of oil have on real gross domestic product and the aggregate price level?

Real Gross Domestic Product: Increase Price Level: Decrease

If fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?

Real Output will increase; UE will decrease

Under a flexible exchange rate system, the Indian rupee will appreciate against the Japanese yen when:

Real interest rates in India increase relative to those in Japan

One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease?

Real value of assets

The Federal Reserve can cause an increase in interest rates in an attempt to:

Reduce inflation

Which of the following will increase the supply of loanable funds in the U.S.?

Reduction in government spending

If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the following is true?

Resources are not available to achieve that combination of goods or services

The time between the realization of economic conditions and the implementation of fiscal policy is called the _____________ lag.

administrative

Ways to measure GDP

the total value of all FINISHED goods and services produced in a given time GDP= C+I+GS+X-I

If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will ________ and the short-run Phillips curve will shift ________.

increase, upward

When equilibrium price is ambiguous and equilibrium quantity is increasing , a(n) _________ in demand and an __________ in supply is occurring

increase; increase

The fractional reserve system of banking started when goldsmiths began

issuing paper receipts in excess of the amount of gold held.

For an economy that is operating inside its production possibilities curve, which of the following is true?

it can increase the production of both goods

When real income increases,

people will demand more money to do more shopping.

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward.

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full employment level?

an increase in government spending

Which of the following will most likely cause an increase in real output in the long run?

an increase in immigration from abroad

According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by:

an increase in inflation

The Federal Reserve decreases the federal funds rate by

buying government bonds on the open market

When finding the opportunity cost of making chopsticks for paper bags, the number of chopsticks able to me made goes on the ______ and the number of paper bags able to be made goes on _______

bottom; top

The demand curve for loanable funds represents the behavior of

businesses

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's average fixed cost of producing 2 units of output? a) $24.00 b) $20.50 c) $12.00 d) $8.00 e) $7.50

c) $12.00

When equilibrium price decreases and equilibrium quantity is ambiguous, a(n) _________ in demand and a(n) __________ in supply is occuring

decrease; increase

The practice of fractional reserve banking

requires banks to hold a fraction of their liabilities in reserves.

An increase in international value of the US dollar will most likely benefit-

retired US citizens living overseas on their social security checks

The Fed can increase the money supply by

decreasing the required reserve ratio.

The value of a country's currency will tend to appreciate if:

demand for the country's exports increase

The value of a country's currency will tend to appreciate if

demand for the country's exports increases

If the business community becomes more optimistic about the profitability of capital, the ________ curve for loanable funds would shift, driving the equilibrium interest rate ________.

demand, up

The reserves of a commercial bank consist of

deposits at the Federal Reserve Bank and vault cash.

If the exchange rate between the US dollar and the British pound changed from $2 per 1* to $3 per 1*, and domestic prices in both countries stayed the same, then the US dollar would

depreciate, making US imports from Britain more expensive

Approximately how long does it take a change in monetary policy to influence aggregate demand?

six months

Suppose the government increases its purchases by $1,200 while holding the money supply constant. The change in aggregate demand resulting from an increase in government purchases if the government allows interest rates to adjust (as compared to the change if it were to hold them constant) will be

smaller but still positive

If the production of technology of a good improves and at the same time the number of consumers willing and able to buy in the good in the market increases, what will happen?

equilibrium quantity will increase

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of

the price level

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of what?

the price level

If nominal GDP is $400, real GDP is $200, and the money supply is $100, then

the price level is 2, and the velocity is 4

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. The commercial banking system has excess reserves of

$0 billion.

(Will be a chart on test) When does dissaving occur?

$620

54. An increase in which of the following would LEAST likely increase labor productivity? (A) Physical capital (B) Human capital (C) Technological improvements (D) Educational achievement (E) The labor force

(E) The labor force

(Will be a chart on test) What is the marginal propensity to consume for this economy?

The marginal propensity to save for this economy is

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following?

1 ton of steel in Alpha AND 2 tons of steel in Beta

If a cup of coffee costs 2 euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate?

1/3 euro per dollar

The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

10.

The population of Ectenia is 100 people: 40 work full-time, 20 work half-time but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the size of Ectenia's labor force?

The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is:

8 percent

Based on the given table, the equilibrium interest rate is

8 percent.

Suppose you invest $1,000 at 12%, and the rate of inflation is 4% annually. Based on the Fisher equation, what is the increase or decrease in your real purchasing power?

8% increase

Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement? (A) Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets (B) Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law. (C) Mary Jane is three times faster than any carpenter so she should give up her law practice to become a carpenter. (D) When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour. (E) Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per hour.

The Federal Reserve can cause an increase in interest rates in an attempt to (A) reduce inflation (B) reduce cyclical unemployment (C) reduce structural unemployment (D) increase aggregate demand (E) increase investment spending

The demand for money increases when national income increases because (A) spending on goods and services increases (B) interest rates increase (C) the budget deficit increases (D) the money supply increases (E) the public becomes more optimistic about the future

The value of a country's currency will tend to appreciate if (A) demand for the country's exports increases (B) the country's money supply increases (C) the country's citizens increase their travel abroad (D) domestic interest rates decrease (E) tariffs on the country's imports decrease

Under a fractional reserve banking system, banks are required to (A) keep part of their demand deposits as reserves (B) expand the money supply when requested by the central bank (C) insure their deposits against losses and bank runs (D) pay a fraction of their interest income in taxes (E) charge the same interest rate on all their loans

Under which of the following conditions would a restrictive monetary policy be most appropriate? (A) High inflation (B) High unemployment (C) Full employment with stable prices (D) Low interest rates (E) A budget deficit

Which of the following most undermines the ability of a nation's currency to store value? (A) A decrease in the purchasing power of the currency (B) The use of credit and debit cards as mediums of exchange (C) An increase in the prices of federal bonds (D) Appreciation of the currency in the international money market (E) An increase in the supply of foreign currencies in the international money market

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy? (A) Interest rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease. (B) Interest rates increase, investment and consumption spending decrease, aggregate demand increases, and output and prices decrease. (C) Interest rates increase, investment and consumption spending increase, aggregate demand decreases, and output and prices decrease. (D) Interest rates decrease, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease. (E) Interest rates decrease, investment and consumption spending decrease, aggregate demand decreases, and output and prices increase.

Which of the following will cause the United States dollar to depreciate relative to the euro? (A) An increase in household income in the United States (B) An increase in interest rates in the United States (C) An increase in household income in Europe (D) A decrease in interest rates in Europe (E) A decrease in price level in the United States

Which of the following will increase the United States trade deficit? (A) United States firms buying technologically advanced computers from Germany (B) European citizens traveling in large numbers to the United States (C) A United States company being hired to build a production plant in another country (D) The United States dollar depreciating in the foreign exchange market (E) The United States selling one million tons of wheat to China

Which of the following would occur if the international value of the United States dollar decreased? A. United States exports would rise. B. More gold would flow into the United States. C. United States demand for foreign currencies would increase. D. The United States trade deficit would increase. E. Americans would pay less for foreign goods

The value of which of the following is counted in the United States gross domestic product?

A car produced in the United States and sold in Europe

Which of the following household purchases will be counted as a part of gross private investment in a country's gross domestic product?

A newly constructed home

Which of the following individuals is classified as unemployed?

A recent college graduate who is looking for her first job

Based on the graph below, which of the following can we conclude about the economy?

A supply shock has probably occurred.

Which of the following factors would be likely to increase households' supply of loanable funds at every interest rate?

A tax credit on savings

Frictional unemployment occurs when which of the following happens?

A worker voluntarily quits a job to search for a better one

Frictional unemployment occurs when-

A worker voluntarily quits a job to search for a better one

Which of the following will cause the United States dollar to depreciate relative to the Euro? A. an increase in household income in the United States B. an increase in interest rates in the United States C. an increase in household income in Europe D. a decrease in interest rates in Europe E. a decrease in price level in the United States

A. (b/c U.S. will buy more foreign goods)

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?

AD = decrease AS = no change

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in WOTF ways in the short run?

AD- decrease AS-not change

A rightward shift of the short run Phillips curve is most likely due to-

An increase in the expected rate of inflation

Which of the following will not cause a shift in the investment demand curve?

An increase in the interest rate

If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has:

Approximately increased by 10%

If an economy always has inflation of 10 percent per year, which of the following costs of inflation will it NOT suffer?

Arbitrary redistributions between debtors and creditors

The equilibrium real interest rate in Britain increases to 8% while the equilibrium real interest rate in Australia remains at 4%. As a result, financial capital will flow from

Australia to Britain, decreasing the interest rate in Britain and increasing the interest rate in Australia

10. The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by (A) a decrease in taxes (B) a decrease in the money supply (C) an increase in government spending (D) an increase in consumption spending (E) an increase in the price level

48. At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade? (A) 1G = 3.0S (B) 1G = 1.55 (C) 1G = 1.0S (D) 1G = 0.55 (E) There is no real exchange ratio that would enable both countries to benefit, since Alpha has an absolute advantage in both goods

50. Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following? Alpha Beta (A) 1 ton of steel 1 ton of steel (B) 1 ton of steel 2 tons of steel (C) 2 tons of steel 1 ton of steel (D) 1 ton of steel 0.5 ton of steel (E) 0.33 ton of steel 1.5 tons of steel

The consumer price index (CPI) is designed to measure changes in:

Cost of a select market basket of goods and services

If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be (A) 5% B) 15% (C) 25% (D) 35% (E) 45%

The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed. Country/ Computers/ Cars A/ 24/ 12 B/ 45/ 15 Which of the following is true according to the data in the table? (A) Country A has an absolute and comparative advantage in the production of computers. (B) Country B has an absolute and comparative advantage in the production of computers. (C) Country B should import computers and export cars. (D) Since Country B has an absolute advantage in the production of both goods, it will not trade with Country (E) Neither country can benefit from trade.

To protect high cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? I. A decrease in domestic production of Y II. An increase in domestic production of Y III. An increase in foreign output of Y (A) I only (B) II only (C) III only (D) I and III only (E) II and III only

Under which of the following circumstances would increasing the money supply be most effective in increasing real gross domestic product? Interest Rates/Employment/Business Optimism (A) high/full/high (B) high/less than full/high (C) low/full/high (D) low/full/low (E) low/less than full/low

Which of the following constitutes the largest component of the United States money supply (M1)? (A) Silver certificates (B) Checkable deposits (demand deposits) (C) Currency (paper money) (D) Coins (E) Large certificates of deposit

Which of the following is likely to occur following the depreciation of the United States dollar? (A) United States imports will increase. (B) United States exports will increase. (C) Demand for the United States dollar will decrease. (D) United States demand for foreign currencies will increase. (E) United States goods will become more expensive in foreign markets.

Which of the following would be included as a liability on a commercial bank's balance sheet? (A) Consumer loans (B) Demand deposits (C) Net worth (D) Bank reserves (E) Treasury bonds

60) In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways? Value of Currency........ Trade Deficit A) Appreciate........ Become smaller B) Appreciate........ Become larger C) Depreciate........ Become smaller D) Depreciate........ Become larger E) Not change........ Not change

B) Appreciate........ Become larger

44) Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate........ International Value of the Peso A) Increase........ Appreciate B) Increase........ Depreciate C) Increase........ No change D) Decrease........ Appreciate E) Decrease........ Depreciate

B) Increase........ Depreciate

7) An increase in which of the following is most likely to promote economic growth? A) Consumption spending B) Investment tax credits C) The natural rate of unemployment D) The trade deficit E) Real interest rates

B) Investment tax credits

38) Which of the following is true about the marginal propensity to consume? A) It is the percentage of total income that is spent on consumption B) It determines the size of the simple spending multiplier C) It increases as incomes increase because increases in income cause people to spend more D) It is the same as the money multiplier E) It is equal to the average propensity to consume for people with low incomes

B) It determines the size of the simple spending multiplier

10) An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in which of the following? A) US interest rates B) The US consumer price index C) Demand for the dollar by US residents D) Exports from the US E) The tariff on goods imported into the US

B) The US consumer price index

Money performs its function as a store of value very well, because it protects one against the erosion of purchasing power from inflation.

False

If the annual interest rate is 5 percent, then the present value of $1.00 received one year from now is closest to (A) $1.50 (B) $1.05 (C) $1.00 (D) $0.95 (E) $0.05

Based on the balance sheets above for thee different banks, which of the following is true, if the reserve requirement is 10 percent?

Bank B can increase its loans by $40

Based on the balance sheets a bove for three different banks, which of the following is true, if the reserve requirement is 10 percent? Check doc for balance sheets

Bank B can increase its loans by $40.

New Keynesian and monetarist economists agree that the growth rate of the money supply should be set at a rate that reflects real output.

False

What happens when interest rates are set higher than the equilibrium rate?

Because the supply of loanable funds exceeds demand, banks are unable to lend as much money as they would like.

In the United States, monetary policy is the responsibility of the

Board of Governors of the Federal Reserve System.

Based on the graph below, which of the following monetary policies should the Fed implement to restore long-run equilibrium?

Buy Treasury securities

To counteract a recession, the Federal Reserve should:

Buy securities on the open market and lower the discount rate

Which of the following tools can the Federal Reserve use to lower interest rates?

Buying Treasury bills

Expansionary monetary policy can affect the economy through which of the following chains of events?

Buying bonds increases the money supply, which lowers the interest rate

Which of the following actions by the Federal Reserve of the United States increases the money supply?

Buying government bonds on the open market

Which of the following policies should be used to stimulate the economy?

Buying government securities

Which of the following is an example of equity finance?

Buying stock

63. Using equal amounts of labor hours, Country X & Y can each produce the number of watches and radios shown in the PPCs. (A) Country X has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of watches. (B) Country Y has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of radios. (C) Countries X&Y can engage in mutually advantageous trade by exchanging 1 W for 1 R. (D) Country Y is willing to give up 2 watches in exchange for 1 radio from Country X. (E) Country X is willing to give up 2 radios in exchange for 1 watch from Country Y.

A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is Assets: Total Reserves: $15,000 Securities:70,000 Loan:15,000 Liabilities: Demand Deposits; $100,000 (A) $15,000 (B) $12,000 (C) $3,000 (D) $1,800 (E) 0

Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be (A) $10 (B) $100 (C) $900 (D) $1,000 (E) $1,100

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money Supply is (A) $1,600 billion (B) $1,800 billion (C) $2,000 billion (D) $2,200 billion (E) $2,400 billion

The Federal Reserve can increase the money supply by (A) selling gold reserves to the banks (B) selling foreign currency holdings (C) buying government bonds on the open market (D) buying gold from foreign central banks (E) borrowing reserves from foreign governments

The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when (A) interest rates are high (B) the velocity of money is rising (C) people hold a portion of their money in the form of currency (D) the unemployment rate is low (E) the government's budget is in deficit

The real value of the United States dollar is determined by A. federal regulations regarding purchasing power B. the value of the gold backing the dollar C. the goods and services it will buy D. the money multiplier E. the marginal propensity to consume

The real value of the United States dollar is determined by (A) federal regulations regarding purchasing power (B) the value of the gold backing the dollar (C) the goods and services it will buy (D) the money multiplier (E) the marginal propensity to consume

Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession? (A) Decreasing both taxes and the money supply (B) Increasing both taxes and the money supply (C) Increasing government spending and decreasing the federal funds rate (D) Increasing both taxes and the discount rate (E) Engaging in deficit spending and government bond sales

Which of the following will lead to a depreciation of a nation's currency? (A) Lower inflation in the nation than in the rest of the world (B) Higher required reserve ratio in the nation than in the rest of the world (C) Decreased real interest rates in the nation compared with the rest of the world (D) increased demand for the nation's currency (E) Decreased supply of the nation's currency

Which of the following will lead to an increase in the money supply? (A) A decrease in income tax rates (B) A decrease in government spending (C) Open-market purchase of securities by the central bank (D) increased borrowing by the federal government by issuing new bonds (E) An increase in the discount rate

With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following? Capital Stock in U.S. International Value of the Dollar (A) Increase Decrease (B) Increase No change (C) Increase increase (D) Decrease increase (E) No change Decrease

54) Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10%. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be A) $10 B) $100 C) $900 D) $1,000 E) $1,100

C) $900

28) Assume that the nominal interest rate is 10%. If the expected inflation rate is 5%, the real interest rate is A) 0.5% B) 2% C) 5% D) 10% E) 15%

C) 5%

40) Assume that the economy is at full employment. Policymakers wish to maintain the price level but want to encourage greater investment. Which of the following combination of monetary and fiscal policies would best achieve this goal? Monetary Policy........ Fiscal Policy A) No change........ Contractionary B) Expansionary........ No change C) Expansionary........ Contractionary D) Expansionary........ Expansionary E) Contractionary........ Expansionary

C) Expansionary........ Contractionary

51) Under rational expectations, an announced expansion in the money supply will change nominal and real gross domestic products (GDP) in which of the following ways? Nominal GDP........ Real GDP A) Increase........ Increase B) Increase........ Decrease C) Increase........ No change D) No change........ Decrease E) No chnage........ No change

C) Increase........ No change

25) If the federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result? A) Inflation will increase. B) Tax revenues will increases. C) Interest rates will decrease D) Unemployment will decrease E) The international value of the dollar will increase

C) Interest rates will decrease

53) In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways? Real GDP........ Price Level A) Decrease........ Decrease B) Decrease........ Increase C) No change........ Decrease D) Increase........ Decrease E) No change........ Increase

C) No change........ Decrease

The transaction demand for money is very closely associated with money's use as a:

Medium of exchange

AN increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the of the following ways?

Capital per worker= Increase Output per worker= Increase

An increase in which of the following will most likely increase productivity?

Capital stock

______ is the most common way to measure inflation

CPI

An increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the following ways?

Capital per worker - Increase. Output per Worker - Increase

Which of the following best explains the increase in national income the results from equal increases in government spending and taxes?

Consumers do not reduce their spending by the full amount of the tax increase

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?

Consumers do not reduce their spending by the full amount of the tax increase.

According to supporters of rational expectations, which of the following explains why increases in government spending do not cause output to rise?

Consumers recognize that government spending today will have to be paid for by an increase in taxes tomorrow.

An increase in Japan's demand for United States goods would cause the value of the dollar to (A) depreciate because of inflation (B) depreciate because the United States would be selling more dollars to Japan (C) depreciate because the United States money supply would increase as exports rise (D) appreciate because Japan would be buying more United States dollars (E) appreciate because Japan would be selling more United States dollars

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change by the money supply, the interest rate, and the value of the United States dollar in which of the following ways? A. money supply will increase, interest rate and value of the dollar will both decrease B. money supply will increase, interest rate will decrease, value of the dollar will increase C. money supply, interest rate, and value of the dollar will decrease D. money supply will decrease, interest rate and value of the dollar will increase E. money supply will decrease, interest rate will increase, value of the dollar will decrease

In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways? Money Supply/Interest Rate/Value of the Dollar (A) Increase/Decrease/Decrease (B) Increase/Decrease/Increase (C) Decrease/Decrease/Decrease (D) Decrease/Increase/Increase (E) Decrease/Increase/Decrease

In the long run, an increase in aggregate demand due to an expansion in the money supply will increase A) price level and real output B) nominal output and real output C) nominal output but not the price level D) nominal output and the price level E) real output but not the price level

Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run? (A) Gross domestic product (B) The labor force participation rate (C) The price level (D) Unemployment (E) Wage levels

Suppose that the Fed is committed to keeping the nominal interest rate fixed. To maintain the interest rate target in the face of an expansionary fiscal policy, the Fed can do which of the following? (A) increase the prime rate (B) Increase the discount rate (C) Increase the federal funds rate (D) Engage in open-market purchases (E) Engage in open-market sales

The main benefit of free trade between two countries is that (A) income distribution in each country will become more equitable (B) employment in each country will increase (C) migration from one country to the other will increase (D) each country can consume beyond its constraints of resources and productivity (E) each country will become more self-sufficient

When an economy is operating below the full- employment level of output, an appropriate monetary policy would be to increase which of the following? (A) The discount rate (B) The required reserve ratio (C) The international value of the dollar (D) Open market purchases of government bonds (E) Government expenditure on goods and services

When the central bank sells government bonds on the open market, which of the following will most likely increase? (A) Bank reserves (B) Price of bonds (C) Money supply (D) Nominal interest rates (E) The required reserve ratio

Which Federal Reserve action can shift the aggregate demand curve to the left? (A) Lowering the federal funds rate (B) Lowering income taxes (C) Lowering reserve requirements (D) Raising the discount rate (E) Raising government spending on national defense

Which of the following actions by the Fed reduces the ability of the banking system to create money? (A) Decreasing the federal funds rate (B) Decreasing the discount rate (C) Increasing the money supply (D) Increasing the reserve requirement (E) Buying government bonds on the open market

Which of the following best explains why many United States economists support free international trade? (A) Workers who lose their jobs can collect unemployment compensation. (B) It is more important to reduce world inflation than to reduce United States unemployment. (C) Workers are not affected; only businesses suffer. (D) The long-run gains to consumers and some producers exceed the losses to other producers. (E) Government can protect United States industries while encouraging free trade.

Which of the following combinations of economic policies would be most effective to correct a severe recession?

Which of the following combinations of economic policies would be most effective to correct a severe recession? Taxes / Money Supply (A) Increase / Increase (B) Increase / Decrease (C) Increase / No change (D) Decrease / Increase (E) Decrease / Decrease

Which of the following could cause simultaneous increases in inflation and unemployment? (A) A decrease in government spending (B) A decrease in the money supply (C) A decrease in the velocity of money (D) An increase in inflationary expectations (E) An increase in the overall level of productivity

Which of the following monetary and fiscal policy combinations would most likely result in a decrease in aggregate demand? Discount Rate/Open-Market Operations/Government Spending (A)Lower/Buy bonds/Increase (B) Lower/Buy bonds/Decrease (C) Raise/Sell bonds/Increase (D) Raise/Buy bonds/Increase (E) Raise/Sell bonds/Decrease

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods? (A) Workers in the United States would have more jobs in the long run. (B) Income in the United States would be redistributed from the rich to the poor. (C) The United States standard of living would increase. (D) The United States economy would become less efficient. (E) United States exports would increase.

With an upward-sloping aggregate supply curve, an increase in the money supply will affect the price level and real gross domestic product (GDP) in the short run in which of the following ways?

With an upward-sloping aggregate supply curve, an increase in the money supply will affect the price level and real gross domestic product (GDP) in the short run in which of the following ways? Price Level / Real GDP (A) Decrease / Decrease (B) Decrease / Increase (C) Increase / Decrease (D) Increase / Increase (E) No change / No change

Nina wants to buy and operate an ice cream truck but doesn't have the financial resources to start the business. She borrows $5,000 from her friend Max, to whom she promises an interest rate of 7 percent, and gets another $10,000 from her friend David, to whom she promises a third of her profits.

David is a stockholder, and Max is a bondholder

A country can have an increased surplus in its balance of trade as a result of

Decling imports and rising exports

Assume the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will-

Decrease by $50,000

If the exchange rate between the United States dollar ($) and the British Pound (#) changed from $2 per #1 to $3 per #1, and domestic prices in both countries stayed the same, then the United State dollar would

Depreciate, making US imports from Britain more expensive

If the exchange rate between the US dollar ($) and the British Pound changed from 2 dollars per 1 pound to 3 dollars per 1 pound, and domestic prices in both countries stayed the same, then the United States dollar would:

Depreciate, making the United States imports from Britain more expensive

What is meant by the expression "In the long run, we're all dead"?

Deviations from long-run equilibrium can have significant consequences on people's lives

If the public's desire to hold money as currency increases, what will the impact be on the banking system? (A) Banks would be more able to reduce unemployment. (B) Banks would be more able to decrease aggregate supply. (C) Banks would be less able to decrease aggregate supply. (D) Banks would be more able to expand credit. (E) Banks would be less able to expand credit.

If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds on the open market, the money supply will (A) increase by a maximum of $9,000 (B) increase by a maximum of $90,000 (C) decrease by a maximum of $9,000 (D) decrease by a maximum of $10,000 (E) decrease by a maximum of $100,000

In the short run, an expansionary monetary policy Would most likely result in which of the following changes in the price level and real gross domestic product (GDP) ? Price Level/ Real GDP (A) Decrease / increase (B) No change/Decrease (C) Increase/ No change (D) Increase/ Decrease (E) Increase/ Increase

One way in which the Federal Reserve works to change the United States money supply is by changing the (A) number of banks in operation (B) velocity of money (C) price level (D) prime rate (E) discount rate

Which of the following statements is false?

Keynesians believe that prices and wages adjust quickly to new economic conditions.

Which of the following forms of savings can mitigate the effects of crowding out?

Household savings

Which of the following statements about the simple circular flow model of a market economy is correct?

Households are on the demand side of the product market and supply side of the resource market

For an economy consisting of households and businesses only, which of the following is consistent which the circular flow of income and production?

Households are suppliers of resources and consumers of goods and services

For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?

Households are suppliers of resources and consumers of goods and services.

Positive Economics

How things actually are

Normative Economics

How things should be

The table above indicates labor-hours needed to produce a single unit of each of two commodities in each of two countries. If labor is the only factor used to produce the commodities, which of the following statements must be correct?

I. County A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat III. Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for one unit of wheat (both I and III, or letterD)

Refer to the diagram of the market for money. The equilibrium interest rate is

I2.

Which of the following statements is true?

If the price level or real GDP changes, the money demand curve will shift.

Monetary policy is expected to have its greatest impact on

Ig.

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?

Imports: decrease........Exports: increase

Which of the following is a positive, rather than a normative, statement?

Law X will reduce national income

(Would be a graph on this q) stagflation will be caused by-

Leftward shift in the short run aggregate supply curve only

Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following?

Long-run real Gross Domestic Product

Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following?

Long-run real gross domestic product

Which of the following represents a way in which the Fed can expand the money supply?

Lowering the discount rate

Which of the following best describes how Keynesians view the effect of monetary policy on the economy?

Monetary policy can cause the economy to expand.

How much tax revenues would be collected if total income were $4 trillion and the tax rate were zero?

None of the above

The money multiplier

Only A and B are correct.

Which of the flowing will be counted as unemployed by the United States Bureau of Labor Statistics?

Persons who were fired from their previous job and are actively seeking applying for work

Which of the following will be counted as unemployment by the United States Bureau of Labor Statistics?

Persons who were fired from their previous jobs and are actively applying for work.

The diagram above shows the production possibilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT:

Point X represents the most efficient combination of the two goods that can be produced by this economy

Which political party has supported the idea of the Laffer curve?

The Republican Party

Assume that Canada imports more goods and services than it exports. Which of the following is true of the Canadian balance of payments accounts?

The trade balance must be negative

Which of the following best describes human capital?

The training and education of workers

An increase in which of the following would reduce the United States balance-of-trade deficit?

The value of foreign currency relative to the United States dollar

A goldsmith need not keep all of the gold deposits people leave with him on hand in his vault, because

all depositors are not likely to demand their gold at once.

According to the transaction motive,

all of the above statements are true.

Characteristics of money include

all of the above.

M1 includes

all of the above.

M2 includes

all of the above.

The major purpose of the Federal Reserve buying government securities in open-market operations is to

allow banks to increase their lending.

When equilibrium price increases and equilibrium quantity is ambiguous, a(n) _________ in demand and a(n) __________ in supply is occurring

ambiguous; increase; decrease

A decrease in the reserve ratio increases the

amount of excess reserves in the banking system.

An interest rate above the market equilibrium indicates

an excess supply of money.

In the narrowest definition of money, M1, savings accounts are excluded because they are:

not a medium of exchange

17. The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by a. a decrease in taxes b. a decrease in the money supply c. an increase in government spending d. an increase in consumption spending e. an increase in the price level

b. a decrease in the money supply

7. Of the following, the most liquid asset is a. mutual funds b. currency c. time deposits d. demand deposits e. savings deposits

b. currency

43. The purchase of United States government bonds by Japanese investors will be included in Japan's a. current account b. financial account (formerly called capital account) c. trade deficit d. foreign direct investment e. imports

b. financial account (formerly called capital account)

A price ceiling is set _______ equilibrium. If it is set __________ equilibrium it is non-binding because the price will fall down to equilibrium

below; above

Unexpected inflation ________ borrowers and __________ lenders

benefits; hurts

Discouraged workers _______ the labor force participation rate because they leave the labor force, which ________ the unemployment rate

better; decrease

Large corporations, the federal government, or state and local governments usually issue __________ in order to finance their purchases.

bonds.

Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT

borrowers

26. An increase in which of the following will most likely increase productivity? a. Population growth rate b. Aggregate demand c. Capital stock d. Consumption e. Employment

c. Capital stock

A change in the interest rate will

cause a movement along the money demand curve.

The Federal Reserve System of the United States is the country's

central bank.

Advocates for setting monetary policy by rule rather than discretion often argue that

central bankers with discretion are tempted to renege on their announced commitments to low inflation.

According to the efficient markets hypothesis,

changes in stock prices are impossible to predict from public information

Assume the velocity of money is held constant. According to the classical view of money,

changes in the money supply will only affect prices.

The Federal Reserve's target rate for the federal funds rate

commits the Fed to set a particular money supply so that it hits the announced target.

CPI

consumer price index CPI= 100 x (price of current year/ price of base year) base year is ALWAYS 100 they have nothing to do with the year before they were taken, it is all about the BASE YEAR

Which is the largest component of GDP?

consumption

An increase in spending in an economy will cause a multiplied increase in gross domestic product because

consumption increases as income increases

An increase in spending in an economy will cause a multiplied increase in gross domestic product because-

consumption increases as income increases

Hyperinflation is typical caused by:

continuous expansion of the money supply to finance government budget deficits

Hyperinflation is typically caused by

continuous expansion of the money supply to finance government budget deficits

The consumer price i ndex (CPI) is designed to measure changes in the

cost of a select market basket of goods and services

Menu costs

costs associated with businesses having to change prices ie: having to print out new menus

Of the following, the most liquid asset is

currency

What is the most liquid asset?

currency

the most liquid asset is

currency

Output: 0, 1, 2, 3, 4, 5, 6 Total Cost: $24, 33, 41, 48, 54, 61, 69 Which of the following is the firm's marginal cost of producing the fourth unit of output? a) $54.00 b) $13.50 c) $7.50 d) $6.00 e) $1.50

d) $6.00

15. The main benefit of free trade between two countries is that a. income distribution in each country will become more equitable b. employment in each country will increase c. migration from one country to the other will increase d. each country can consume beyond its constraints of resources and productivity e. eachcountrywillbecomemore self-sufficient

d. each country can consume beyond its constraints of resources and productivity

A country can have an increased surplus in its balance of trade as a result of

declining imports and rising exports

Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will

decrease by $50,000

Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess serves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will...

decrease by $50,000

If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds on the open market, the money supply will

decrease by a maximum of $100,000

The amount of money that the public wants to hold in the form of cash will

decrease if interest rates increase

Excess reserves refer to the

difference between actual reserves and required reserves.

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

discount rate.

Which of the following would cause the official unemployment rate to understate the problem of unemployment?

discouraged workers

If an increase in the price of good X causes a drop in demand for good Y, good Y is a) an inferior good b) a luxury good c) a necessary good d) a substitute X e) a complement for good X

e) a complement for good X

21. Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market? a. An increase in the demand for Country A's currency b. An increase in the supply of Country B's currency c. A decrease in the supply of Country A's currency d. A decrease in the demand for Country B's currency e. A depreciation of Country A's currency

e. A depreciation of Country A's currency

40. If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways? Money Multiplier Money Supply a. Increase Increase b. Increase Decrease c. Increase No change d. Decrease No change e. Decrease Decrease

e. Decrease Decrease

The government in an open economy cuts spending to reduce the budget deficit. As a result, the interest rate ________, leading to a capital ________ and a real exchange rate ________.

falls, outflow, depreciation

When the economy goes into a recession, real GDP ________, and unemployment ________.

falls, rises

A point inside the production possibilities frontier is

feasible, but not efficient

The purchase of US government bonds by Japanese investors will be includes in Japan's

financial account (formerly called capital account)

The purchase of United States government bonds by Japanese investors will be included in Japan's

financial account (formerly called capital account)

Tariffs are different from assigned import quotas in that tariffs

generate additional revenue for the domestic government

Tariffs are different from assigned import quotas in that tariffs will

generate additional revenue for the domestic government

An increase in the aggregate demand for goods and services has a larger impact on output ________ and a larger impact on the price level ________.

in the short run, in the long run

Coins in people's pockets and purses are

included both in M1 and in M2.

The main policy goal of the unemployment insurance system is to reduce the

income uncertainty that workers face

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will

increase by less than double

Assume the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16%-8%, the money supply will-

increase by less than double

Which of the following is LEAST likely to promote economic growth?

increase in consumption of nondurable goods

According to the crowding-out effect, an increase in government spending will

increase interest rates.

From 2008 to 2012, the ratio of government debt to GDP in the United States

increased markedly

The phenomenon of crowding out occurs when

increases in government spending raise the interest rate and crowd out investment spending.

Productivity increases can be attributed to:

increases in physical capital or the amount of machinery and office space available to workers; increases in human capital or the level of a workers education; technological advances

A contraction of the money supply

increases the interest rate and decreases aggregate demand.

If the economy is in a severe recession, which of the following policy actions is most appropriate?

increasing both the money supply and government spending

If the economy is in a severe recession, which policy action is the most appropriate?

increasing the money supply and government spending

Which of the following actions by the Federal Reserve reduces the ability of the banking system to create money?

increasing the reserve requirement

According to the quantity theory of money and the Fisher effect, if the central bank increases the rate of money growth,

inflation and the nominal interest rate both increase

A short-run Phillips curve shows an inverse relationship between

inflation and unemployment

A short-run Phillips curve shows the inverse relationship between:

inflation and unemployment

A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause

interest rates to rise

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow

into the United States and the dollar will appreciate

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow:

into the United States and the dollar will appreciate

A barter economy is different from a money economy in that a barter economy

involves higher costs for each transaction

A barter economy is different from a money economy in that a bater economy

involves higher costs for each transaction

A supply shock will shift the short-run aggregate supply curve __________ and create __________.

inward; excess demand

In the financial market, a bond

is a debt contract that promises lenders a fixed interest payment in the future.

The supply curve of money ______________, while the demand curve for money ___________.

is a vertical line; slopes downward

The given data suggest that the amount of money demanded for transactions

is independent of the interest rate.

The amount of money reported as M2

is larger than the amount reported as M1.

The "recognition lag" refers to the fact that

it takes a while before policymakers recognize that aggregate demand has shifted inward.

An increase what would result in an increase in aggregate supply?

labor force participation rate

An increase in which of the following would most likely result in an increase in aggregate supply?

labor-force participation rate

33. On the graph above, stagflation will be caused by a a. leftward shift in the short-run aggregate supply curve only b. rightward shift in the short-run aggregate supply curve only c. leftward shift in the aggregate demand curve only d. rightward shift in the aggregate demand curve only e. rightward shift in both the short-run aggregate supply and aggregate demand curves

leftward shift in the short-run aggregate supply curve only

On the graph above, stagflation will be caused by a

leftward shift in the short-run aggregate supply curve only

If the money supply increases by 10% and real GDP increases by 3%, prices will increase by

less than 10%.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is full-employment output of Qf, it should

maintain the interest rate at 6 percent.

Financial markets

money that the government uses to pay for its stuff

Factor income

money we receive wages, interest, price profits equals domestic spending

Which of the following correctly expresses the quantity theory of money?

money × velocity = price level × real output

The ability of insurance to spread risk is limited by

moral hazard and adverse selection

Unlike a market economy, a command economy uses

more centralized planning in economic decision making

Actual unemployment=

natural rate of employment + cynical unemployment

The purchase and sale of government securities by the Fed is called

open-market operations.

The fact that it may take months to actually distribute government spending once that spending has been approved is known as the

operational lag.

The consumer price index (CPI) is criticized for

overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

18. An increase in the international value of the United States dollar will most likely benefit a. domestic producers of premium wines sold to people in other countries b. currency traders holding large quantities of yen c. German citizens vacationing in the United States d. Canadian citizens expecting to purchase real estate in the United States e. retired United States citizens living overseas on their social security checks

retired United States citizens living overseas on their social security checks

An increase in the international value of the United States dollar will most likely benefit

retired United States citizens living overseas on their social security checks

Compared to equity finance, debt finance offers

returns that are limited to the stated interest rate.

In the short run, when the government increases its spending, the demand for money

rises, because income rises as a result of the increase in aggregate demand.

Unit of account

rising prices changes the way to use the dollar as a unit of measurement. inflation hurts the dollars ability to assign value to the dollar. a house could equal one dollar this week but only a half of a house next week if prices increase.

A decrease in labor productivity wil shift the:

short run aggregate supply curve to the left

There is an asset demand for money primarily because of which function of money?

store of value

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI overstates inflation

The consumer price index measures approximately the same economic phenomenon as

the GDP deflator

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

the GDP deflator but not the CPI

What "backs" the money supply of the United States?

the U.S. government's ability to keep the value of money relatively stable

A sudden crash in the stock market shifts

the aggregate demand curve

Inflation occurs when there is a sustained increase in which of the following?

the average price level

When the market interest rate is less than a bond's coupon rate,

the bond is trading at a premium.

If labor costs rise in the automobile industry, what will happen to the car prices and the quantity sold?

the car prices will increase and the quantity sold will decrease

If a nation has high and persistent inflation, the most likely explanation is

the central bank creating excessive amounts of money

Potential gross domestic product will decrease under which conditions?

the country's annual depreciation is less than its annual gross investment

Advocates of taxing consumption rather than income argue that

the current tax code discourages people from saving

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets?

the demand curve shifts to the right

How will an increase in government spending affect the demand for money and nominal interest rates?

the demand for money will increase and the nominal interest rate will increase

Quota rent

the difference between supply and demand price

The price of one nation's currency expressed in terms of another nation's currency is called

the exchange rate

The price of one's nations currency expressed in terms of another nation's currency is called:

the exchange rate

Automatic stabilizers control

the fluctuations of the business cycle

Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates?

the labor force of Country A is becoming more skilled than the labor force of Country B

Price floor

the lowest legal price a good can be sold for that is set by the government. It is set up to keep prices from getting too low for those that demand them.

Advocates of the theory of rational expectations believe that

the sacrifice ratio can be much smaller if policymakers make a credible commitment to low inflation.

In the macroeconomy, savings comes from

the savings of households, a budget surplus, and a trade deficit

A change in the expected price level shifts

the short run aggregate supply curve

What is the most fundamental issue economics addresses?

the use of scarce resources

When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage,

they both obtain consumption outside of their production possibilities frontier

Which goods will a nation typically import?

those goods in which other nations have a comparative advantage

Costs of inflation

too much money devalues it because there is too much money floating around

Refer to the given market-for-money diagrams. Curve D1 represents the

transactions demand for money.

An interest rate below the market equilibrium will

trigger competition for loanable funds.

Deflation

when prices drop lenders win, borrowers lose

The commercial banking system has excess reserves of

zero.

The purchase of government securities from the public by the Fed will cause

the money supply to increase.

If the Fed decides to increase the required reserve ratio,

the money supply will decrease.

Cynical unemployment

the most important, and damaging, type of unemployment caused by deviations in the business cycle

Both structural and frictional unemployment combine to form

the natural rate of unemployment

Shoe leather cost

the physical adaptions that must take place due to prices raising value of going elsewhere unused transactions due to inflation ie: having to go to the ATM machine to get cash

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth.

If the marginal propensity to consume is .75 then a $100 increase in investment will result in a maximum increase in equilibrium rGDP of-

$400

According to traditional Keynesian analysis, which of the following will increase aggregate demand the most?

$100 billion increase in government spending

Refer to the graph. If the equilibrium interest rate is 4 percent, the supply of money must be

$100 billion.

Refer to the given balance sheets. If the reserve ratio is 25 percent, commercial banks have excess reserves of

$12.

If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will most likely be equal to...

$120 Million

If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M will at most be equal to

$120 million

If the required reserve ratio is 10%, actual reserves are $10 million, and currency in circulation is equal to $20 million, M will at most be equal to-

$120 million

If the required reserve is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will at most be equal to

$120 million This answer is correct

If the interest rate is 10 percent, then the future value in two years of $100 today is

$121

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 %, the max increase in the money supply is

$2,000 billion

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money supply is:

$2,000 billion

A bank has $800 million in demand deposits and $100 million in reserves. if the reserve requirement is 10 percent, the bank's excess reserves equal...

$20 million

By how much does the money supply increase if the Federal Reserve injects $5 million into the system and the required reserve ratio is .2?

$25 million

In a closed economy with only lump-sum taxation, if the marginal propensity to consume is equal to .75, a $70 billion increase in government spending could cause a maximum increase in output of :

$280 billion

Calculate the present value of $10,000 invested at 12% for 10 years.

$3,219.73

Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars? figure on doc

$4, 500

Based on the economic figures in the table above , what is the value of the GDP in billions of dollars?

$4,500

Assume marginal propensity to consume out of disposable income is .8 and that the government taxes all income at a constant rate of 30%. If gross income increases by $100, consumption will initially increase by-

$56

Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by

$56

Dissaving occurs when disposable income is

$620

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36, 000 from her disposable income of $40, 000. If her disposable income in 2005 increased to $50, 000, her consumption spending increased by

$8, 000

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by:

$8,000

Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equi-librium gross domestic product will change by a maximum of

$8.0 million

Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. if the marginal propensity to consume is .75, equilibrium gross domestic product will change by a maximum of:

$8.0 million

Angus the sheep farmer sells $20 worth of wool to Barnaby the knitter. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is the GDP here?

$80

If the face value of a bond is $1,000 and the coupon rate is 8%, the annual interest payment is ______.

$80

If the interest rate is 10 percent, then the present value of $100 to be paid in two years is

$83

Suppose that the Fed sets the required reserve ratio at 12%. First Bank has $1,000,000 in deposits. How much is First Bank able to lend to its customers?

$880,000

Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit a ll loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of

$900

Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decided to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of:

$900

15. According to the short-run Phillips curve, lower inflation rates are associated with (A) higher unemployment rates (B) higher government spending (C) larger budget deficits (D) greater labor-force participation rates (E) smaller labor-force participation rates

(A) higher unemployment rates

If the consumer price index is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ today.

$900

If Val invested $2,500 in the year 2000 at an interest rate of 11% annually, how much will she have in the year 2035?

$96,437.13

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200 consumption spending will increase by:

$960

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200, consumption spending will increase by

$960

rate of inflation

((new CPI - old CPI) / Old CPI) x 100 to find the rate of inflation per year, you have to subtract the old CIP from the new CPI and divide it by the old, then multiply it by 100

National Economic Figures (**See test (billions of dollars) Consumption $ 3,000 Gov Purchases 1,000 Gross Ig 700 Depreciation 300 Exports 300 Imports 500 Indirect Business Taxes 0 32. Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars? (A) $4,500 (B) $4,700 (C) $4,900 (D) $5,150 (E) $5,950

(A) $4,500

Which of the following will cause the United States dollar to depreciate to the Euro?

(A) An increase in household income in the United States.

6. Which of the following best illustrates an improvement in a country's standard of living? (A) An increase in real per capita gross domestic product (B) An increase in nominal per capita gross domestic product (C) Price stability (D) A balanced budget (E) An increase in the consumer price index

(A) An increase in real per capita gross domestic product

33. Which of the following best explains the increase in national income that results from equal increases in government spending and taxes? (A) Consumers do not reduce their spending by the full amount of the tax increase. (B) The government purchases some goods that consumers would have purchased on their own anyway. (C) Consumers believe all tax cuts are transitory. (D) The increase in government spending causes adecreaseininvestment. (E) Consumersareawareoftaxincreasesbutnot of increases in government spending.

(A) Consumers do not reduce their spending by the full amount of the tax increase.

28. An increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the following ways? Capital Output per Worker, per Worker (A) Increase , Increase (B) Increase , Decr (C) No change , Incr (D) Decrease , Incr (E) Decrease , Decr

(A) Increase , Increase

24. A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy? Fiscal Policy , Monetary Policy (A) Increase taxes, Sell Gov Bonds (B) Decrease taxes, Buy Bonds (C) Decrease taxes, Lower Margin Req (D) Decrease gov spending, Lower Discount Rate (E) Increasegov spending, Raise Discount Rate

(A) Increase taxes, Sell Gov Bonds

49. Which of the following occurs as investment becomes more responsive to changes in the interest rate? (A) Monetary policy becomes more effective at changing real gross domestic product. (B) Fiscal policy becomes more effective at changing real gross domestic product. (C) Monetary policy becomes more effective at changing interest rates. (D) Fiscal policy becomes more effective at changing interest rates. (E) Thereisnochangeintheeffectivenessof either monetary or fiscal policy.

(A) Monetary policy becomes more effective at changing real gross domestic product.

52. One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease? (A) Real value of assets (B) Prices of foreign goods (C) Prices of substitute goods (D) Expectations of future prices (E) Government deficit

(A) Real value of assets

5. The value of a country's currency will tend to appreciate if (A) demand for the country's exports increases (B) the country's money supply increases (C) the country's citizens increase their travel abroad (D) domestic interest rates decrease (E) tariffs on the country' s imports decrease

(A) demand for the country's exports increases

Effects of price floors

-Low quality -Artificially high quality (can't compete on price anymore) -Illegal activity -Inefficient allocation among sellers -Wasted resources

4. Unlike a market economy, a command economy uses (A) more centralized planning in economic decision making (B) consumer sovereignty to make production decisions (C) its resources more efficiently (D) price signals in economic decision making (E) the popular vote in making resource allocation decisions

(A) more centralized planning in economic decision making

56. In the narrowest definition of money, M1, savings accounts are excluded because they are (A) not a medium of exchange (B) not insured by federal deposit insurance (C) available from financial institutions other than banks (D) a store of purchasing power (E) interest-payingaccounts

(A) not a medium of exchange

58. Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by (A) $4,000 (B) $8,000 (C) $9,000 (D) $10,000 (E) $14,000

(B) $8,000

46. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of (A) $800 (B) $900 (C) $1000 (D) $1100 (E) $1,200

(B) $900

40. A commercial bank's ability to create money depends on which of the following? (A) The existence of a central bank (B) A fractional reserve banking system (C) Gold or silver reserves backing up the currency (D) A large national debt (E) The existence of both checking accounts and savings accounts

(B) A fractional reserve banking system

31. If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true? (A) Alpha' s currency will have appreciated relative to Beta's currency. (B) Alpha's currency will have depreciated relative to Beta's currency. (C) Alpha will have had lower nominal interest rates than Beta. (D) Alpha will have had slower growth in the money supply than Beta. (E) Alpha'seconomywillhavegrownatafaster rate than Beta's.

(B) Alpha's currency will have depreciated relative to Beta's currency.

26. The table below shows the production alternatives of Country A and Country B for producing com- puters and cars with equal amounts of resources that are fully and efficiently employed. Country Computers Cars A 24 0 0 12 B 45 0 0 15 Which of the following is true according to the data in the table? (A) Country A has an absolute and comparative advantage in the production of computers. (B) Country B has an absolute and comparative advantage in the production of computers. (C) Country B should import computers and export cars. (D) Since Country B has an absolute advantage in the production of both goods, it will not trade with Country A. (E) Neithercountrycanbenefitfromtrade.

(B) Country B has an absolute and comparative advantage in the production of computers.

1. A country's government runs a budget deficit when which of the following occurs in a given year? (A) The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations. (B) Government spending exceeds tax revenues. (C) The debt owed to foreigners exceeds the debt owed to the country's citizens. (D) The amount borrowed exceeds the interest payment on the national debt. (E) Interest payments on the national debt exceed spending on goods and services.

(B) Government spending exceeds tax revenues.

11. Which of the following combinations of changes in government spending and taxes is necessarily expansionary? Government Spending, Taxes (A) Increase, Increase (B) Increase, Decrease (C) Decrease, Not Change (D) Decrease, Increase (E) Decrease, Decrease

(B) Increase, Decrease

60. If economic agents perfectly anticipate policy changes and if all prices, including wages, are completely flexible, which of the following will be true in the long run? (A) The price level will be constant. (B) There will be no trade-off between inflation and unemployment. (C) The unemployment rate will be less than the natural rate of unemployment. (D) The unemployment rate will be greater than the natural rate of unemployment. (E) Changesinthemoneysupplywillnotleadto changes in the price level.

(B) There will be no trade-off between inflation and unemployment.

25. Which of the following is likely to occur following the depreciation of the United States dollar? (A) United States imports will increase. (B) United States exports will increase. (C) Demand for the United States dollar will decrease. (D) United States demand for foreign currencies will increase. (E) UnitedStatesgoodswillbecomemore expensive in foreign markets.

(B) United States exports will increase.

7. Hyperinflation is typically caused by (A) high tax rates that discourage work effort (B) continuous expansion of the money supply to finance government budget deficits (C) trade surpluses that are caused by strong protectionist policies (D) bad harvests that lead to widespread shortages (E) a large decline in corporate profits that leads to a decrease in production

(B) continuous expansion of the money supply to finance government budget deficits

36. A country can have an increased surplus in its balance of trade as a result of (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in capital inflow (E) anappreciatingcurrency

(B) declining imports and rising exports

9. The official unemployment rate understates the unemployment level in the economy because the official unemployment rate (A) ignores the duration of unemployment (B) ignores underemployed and discouraged workers (C) includes jobs created by the underground economy (D) excludes all unemployed teenagers (E) excludesfrictionallyunemployedworkers

(B) ignores underemployed and discouraged workers

42. A barter economy is different from a money economy in that a barter economy (A) encourages specialization and division of labor (B) involves higher costs for each transaction (C) eliminates the need for a double coincidence of wants (D) has only a few assets that serve as a medium of exchange (E) promotesmarketexchanges

(B) involves higher costs for each transaction

Effects of a price ceiling

-Low quality -Inefficient allocation amongst buyers -Wasted resources -illegal activity

20. Which of the following will most likely lead to a decrease in inflationary expectations? (A) A decrease in the marginal propensity to save (B) A decrease in imports (C) A decrease in the money supply (D) An increase in the government budget deficit (E) Anincreaseinthepricesofrawmaterials

22. Which of the following are the most likely short-run effects of an increase in government expenditures? Unemployment Rate,Inflat,RGDP (A) Increase, Inc, Inc (B) Increase, Inc, Decr (C) Decrease, Inc, Inc (D) Decrease, Decr, Inc (E) No change, Decr, Inc

13. For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production? (A) Households are producers of goods and services and consumers of resources. (B) Households are users of resources, and businesses are sources of saving. (C) Households are suppliers of resources and consumers of goods and services. (D) Businesses are users of taxes, and households are sources of taxes. (E) Businessesaresuppliersofresourcesand consumers of goods and services.

43. In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations? Bond Prices, Interest Rates (A) No change, Increase (B) Increase, Increase (C) Increase, Decrease (D) Decrease, Increase (E) Decrease, Decrease

18. Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good? Supply, Demand (A) Increase, Increase (B) Increase, No change (C) No change, Decrease (D) Decrease, Increase (E) Decrease, Decrease

27. Which of the following individuals is considered officially unemployed? (A) Chris, who has not worked for more than three years and has given up looking for work (B) Kim, who is going to school full-time and is waiting until graduation before looking for a job (C) Pat, who recently left a job to look for a different job in another town (D) Leslie, who retired after turning 65 only five months ago (E) Lee, who is working 20 hours per week and is seeking full-time employment

39. An increase in which of the following would be most likely to increase long-run growth? (A) Pension payments (B) Unemployment compensations (C) Subsidies to businesses for purchases of capital goods (D) Tariffs on imported capital goods (E) Tariffsonimportedoil

38. An increase in the government budget deficit is most likely to result in an increase in which of the following? (A) The marginal propensity to consume (B) Exports (C) The real interest rate (D) The money supply (E) Thesimplemultiplier

53. Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply? (A) They are automatic stabilizers. (B) They are tools of discretionary fiscal policy. (C) They have different lag times between implementation of a policy and its effects on aggregate demand. (D) They are favored equally by both classical and Keynesian economists to fine-tune the economy. (E) All are controlled by the Federal Reserve system.

8. All of the following changes will shift the investment demand curve to the right EXCEPT (A) a decrease in the corporate income tax rate (B) an increase in the productivity of new capital goods (C) an increase in the real interest rate (D) an increase in corporate profits (E) an increase in real gross domestic product

12. The hold in the form of cash will (A) be unaffected by any change in interest rates or the price level (B) increase if interest rates increase (C) decrease if interest rates increase (D) increase if the price level decreases (E) decreaseifthepricelevelremainsconstant

21. With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely (A) reduce the price level (B) reduce the level of nominal gross domestic product (C) increase real gross domestic product (D) shift the short-run aggregate supply curve to the right (E) shiftboththeaggregatedemandcurveand the long-run aggregate supply curve to the left

29. If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to (A) pursue an expansionary monetary policy because it is required to do so by law whenever output is below the full- employment level (B) pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the full-employment level (C) lower the discount rate and buy bonds on the open market to generate an increase in output (D) lower the required reserve ratio and sell bonds on the open market to generate an increase in output (E) raisethediscountrateandlowertherequired reserve ratio to generate an increase in output

44. Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of (A) $0.5 million (B) $1.5 million (C) $2.0 million (D) $8.0 million (E) $15 million

(D) $8.0 million

16. Which of the following will lead to a decrease in a nation's money supply? (A) A decrease in income tax rates (B) A decrease in the discount rate (C) An open market purchase of government securities by the central bank (D) An increase in reserve requirements (E) Anincreaseingovernmentexpenditures on goods and services

(D) An increase in reserve requirements

**** (Study Physical Problem) 19. Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent? (A) Bank A has no excess reserves. (B) Bank B has no excess reserves. (C) Bank B can increase its loans by $500. (D) Bank B can increase its loans by $40. (E) BankChasexcessreserves.

(D) Bank B can increase its loans by $40.

14. With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways? Consumption, Real GDP (A) Increase, Increase (B) Increase, Decrease (C) Decrease, Increase (D) Decrease, Decrease (E) No change, Increase

(D) Decrease, Decrease

50. If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true? (A) A smaller number of goods would be available in each trading nation. (B) Total world production of goods would decrease. (C) Everyone within each nation would be better off. (D) Each nation would increase its consumption possibilities. (E) Onenationwouldgainattheexpenseofthe other nation.

(D) Each nation would increase its consumption possibilities.

17. An increase in which of the following would cause the aggregate demand curve to shift to the left? (A) Consumer optimism (B) Population (C) Cost of resources (D) Income taxes (E) Netexports

(D) Income taxes

34. Which of the following statements is true of unanticipated inflation? (A) It decreases the economic well-being of all members of society proportionately. (B) It decreases the economic well-being of all members of society equally. (C) It increases the economic well-being of net creditors. (D) It increases the economic well-being of net debtors. (E) Itincreasestheeconomicwell-beingof workerswithlong-termlaborcontracts.

(D) It increases the economic well-being of net debtors.

10. If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur? (A) Output will increase. (B) Output will decrease. (C) Output will not change. (D) The price level will increase. (E) Thepricelevelwilldecrease.

(D) The price level will increase.

47. Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity? (A) There would be no initial impact, since neither the aggregate supply curve nor the aggregate demand curve would shift. (B) Employment would increase, causing a rightward shift in the aggregate demand curve. (C) The price level would increase, resulting in excess aggregate supply. (D) The short-run aggregate supply curve would shift to the left, increasing the price level. (E) Theaggregatedemandcurvewouldshiftto the left, increasing the price level.

(D) The short-run aggregate supply curve would shift to the left, increasing the price level.

37. Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run? (A) Gross domestic product (B) The labor force participation rate (C) The price level (D) Unemployment (E) Wage levels

(D) Unemployment

3. The transaction demand for money is very closely associated with money's use as a (A) store of value (B) standard unit of account (C) measure of value (D) medium of exchange (E) standardofdeferredpayment

(D) medium of exchange

57. For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply? Unemployment Rate, Inflation Rate (A) 10% 2% (B) 10% 5% (C) 10% 10% (D) 5% 5% (E) 5% 10%

(E) 5% 10%

2. A high marginal propensity to consume implies which of the following? (A) A small change in consumption when income changes (B) A high savings rate (C) A high marginal tax rate (D) An equilibrium level of income near full employment (E) A low marginal propensity to save

(E) A low marginal propensity to save

30. Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run? (A) A decrease in the price level and a decrease in the nominal wage (B) A decrease in the price level and an increase in the nominal wage (C) An increase in the price level and an increase in the nominal wage (D) An increase in the price level and an increase in the real wage (E) An increase in the price level and a decrease in the real wage

(E) An increase in the price level and a decrease in the real wage

23. In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP) ? Price Level, Real GDP (A) Decrease, Incr (B) No change, Decr (C) Increase, No Change (D) Increase, Decr (E) Increase, Inc

(E) Increase, Inc

35. A simultaneous increase in inflation and unem- ployment could be explained by an increase in which of the following? (A) Consumer spending (B) The money supply (C) Labor productivity (D) Investment spending (E) Inflationaryexpectations

(E) Inflationaryexpectations

59. Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following? (A) Price level (B) Unemployment rate (C) Level of exports (D) Level of imports (E) Long-run real gross domestic product

(E) Long-run real gross domestic product

***PPC X,Y, and W are on or outside curve, Z is inside 45. The diagram above shows the production possi- bilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT: (A) Producing at point Z results in the underutilization of resources. (B) The combination represented by point Y is unattainable, given the scarcity of resources. (C) Resources are fully utilized at points W and X. (D) Producing at point X will result in greater economic growth than will producing at point W. (E) Point X represents the most efficient combination of the two goods that can be produced by this economy.

(E) Point X represents the most efficient combination of the two goods that can be produced by this economy.

41. The consumer price index (CPI) is designed to measure changes in the (A) spending patterns of urban consumers only (B) spending patterns of all consumers (C) wholesale price of manufactured goods (D) prices of all goods and services produced in aneconomy (E) cost of a select market basket of goods and services

(E) cost of a select market basket of goods and services

55. Tariffs are different from assigned import quotas in that tariffs will (A) restrict imports (B) increase the price of imported goods (C) benefit domestic consumers of imported goods (D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government

(E) generate additional revenue for the domestic government

48. Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan (C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interestrates in India increase relative to those in Japan

(E) real interestrates in India increase relative to those in Japan

51. The shifting of a country's production possibil- ities curve to the right will most likely cause (A) net exports to decline (B) inflation to increase (C) the aggregate demand curve to shift to the left (D) the long-run aggregate supply curve to shift to the left (E) the long-run aggregate supply curve to shift to the right

(E) the long-run aggregate supply curve to shift to the right

The shifting of a country's production possibilities curve to the right will most likely cause

(E) the long-run aggregate supply curve to shift to the right

Stipulations to Labor Force

- Must be over 16 years old - Must not be in an institution - Must be looking for work

Things that do not count towards the labor force:

- People under the age of 16 - People in an institution (school, prison, etc) - People who are not looking for work

Consequences of quantity controls

-Illegal activity -Lost transactions

The diagram below shows a linear production possibilities curve for a country. If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?

GDP deflator

100 x (nominal GDP/ real GDP)

How many Federal Reserve districts are there in the U.S.?

The world's rich countries, such as Japan and Germany, have income per person that is about _____ times income per person in the world's poor countries, such as Pakistan and India.

Suppose real GDP in Macroland was $400 billion in 2011 and $450 billion in 2012. Then the growth rate of real GDP between 2011 and 2012 was:

12.5%

If First Bank has $1,000,000 in deposits and is able to lend up to $860,000, what is the required reserve ratio?

14%

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers.

If Andy receives $150 in annual interest payments on a bond with a $1,000 face value, we know that the coupon rate on his bond is ______.

15%

Unionized workers are paid about _____ percent more than similar nonunion workers.

15%

At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5 S

At what real exchange ratio , also reffered to as the Terms of trade,between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5S

Refer to the graph. If the supply of money was $200 billion, the interest rate would be

2 percent.

Suppose that real GDP grows at 2% per year, for real GDP to approximately double it will take?

35 years because the rule of 70 states that the number of years it takes for a variable to double is equal to 70 divided by the annual growth rate of the variable

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of

400

According to the most recent data, among workers who are paid at an hourly rate, about _____ percent have jobs that pay at or below the minimum wage.

Assume that the nominal interest is 10 percent. If the expected inflation rate is 5%, the real interest rate is

Assume that the nominal interest rate is 10 percent. if the expected inflation rate is 5 percent, the real interest rate is:

According to the Keynesian model, which of the following would increase aggregate demand? (A) An increase in autonomous investment (B) An increase in the discount rate M. (C) A decrease in unemployment compensation payments (D) A decrease in government expenditures accompanied by an equal reduction in taxes (E) A decrease in government expenditures on public works

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways?

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways? Demand for Money/Nominal Interest Rates (A) Increase / Increase (B) Increase / Decrease (C) Increase / Indeterminate (D) Decrease / Increase (E) Decrease / Decrease

An increase in the international value of the U.S. dollar will tend to cause (A) U.S. exports to fall (B) the national income of the U.S. to increase (C) employment in the manufacturing sector of the U.S. to increase (D) the inflation rate in the U.S. to increase (E) the growth rate of the U.S. economy to increase.

If a French firm buys computers from the U.S., there would be an increase in which of the following in the foreign exchange market? (A) Demand for U.S. dollars and supply of euros (B) Demand for both U.S. dollars and euros (C) Supply of U.S. dollars and demand for euros (D) Supply of both U.S. dollars and euros (E) International value of the euro relative to the U.S. dollar

If a country has a deficit in its current account, there will be a (A) surplus in the financial account (formerly called capital account) (B) surplus in the trade balance (C) surplus in the balance of payments (D) deficit in the financial account (formerly called capital account) (E) deficit in the balance of payments

If aggregate demand is growing faster than long run aggregate supply, the Federal Reserve is most likely to (A) sell securities on the open market (B) increase bond prices (C) increase income taxes (D) decrease the discount rate (E) decrease the required reserve ratio

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease? (A) Purchases of government bonds by the central bank (B) Transfer payments (C) Reserve requirements (D) Government expenditures (E) Investment in basic infrastructure

If exchange rates are allowed to fluctuate freely and the United States demand for Euros increases, which of the following will most likely occur? A. Americans will have to pay more for goods made in the European Union. B. Consumers in the European Union will find that American goods are getting more expensive. C. The United States balance-of-payments deficit will increase. D. The dollar price of Euros will fall. E. The dollar price of European goods will fall

If money stock decreases but nominal gross domestic product remains constant, which of the following has occurred? (A) Income velocity of money has increased. (B) Income velocity of money has decreased. (C) Price level has increased. (D) Price level has decreased. (E) Real output has decreased.

If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should (A) increase the money supply when government spending is increased (B) increase the money supply when government spending is decreased (C) decrease the money supply when government spending is increased (D)increase interest rates when government spending is increased (E) decrease interest rates when government spending is decreased

If the dollar cost of the British pound decreases, United States imports from and exports to the United Kingdom will change in which of the following ways? Imports Exports A. Increase Decrease B. Increase Increase C. Increase No change D. Decrease Decrease E. Decrease Increase

If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production? (A) Government spending increases. (B) Government spending decreases. (C) Personal income taxes are increased. (D) The Federal Reserve sells bonds on the open market. (E) The Federal Reserve buys bonds on the open market.

If the exchange rate between the United States dollar and the British pound changed from $2 per pound to $3 per pound, and domestic prices in both countries stayed the same, then the United States dollar would A. depreciate, making United States imports from Britain more expensive B. depreciate, making United States imports from Britain cheaper C. appreciate, making United States imports from Britain more expensive D. appreciate, making United States imports from Britain cheaper E. purchase 3 times more British goods than before the change occurred

If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur? (A) United States exports to Japan will increase. (B) The United States government will increase the tariff on Japanese imports. (C) The United States balance-of-trade deficit with Japan will become even larger. (D) United States tourists can be expected to visit Japan in greater numbers. (E) Trade between the United States and Japan will not be affected.

If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run? (A) Aggregate demand will decrease. (B) Aggregate demand will increase. (C) Aggregate supply will decrease. (D) Both aggregate demand and aggregate supply will decrease. (E) Both aggregate demand and aggregate supply will increase.

If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will lead to a proportional (A) an increase in the nominal output (B) decrease in the price level (C) decrease in the nominal interest rate (D)decrease in the real interest rate (E) decrease in the unemployment rate.

In the Keynesian model, an expansionary monetary policy will lead to (A) lower real interest rates and more investment (B) lower real interest rates and lower prices (C) higher real interest rates and lower prices (D) higher real interest rates and higher real income (E) higher nominal interest rates and more investment

In the narrowest definition of money, M1, savings accounts are excluded because they are (A) not a medium of exchange (B) not insured by federal deposit insurance (C) available from financial institutions other than banks (D) a store of purchasing power (E) interest-paying accounts

Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement? A. Mary Jane has a comparative advantage in law so she should specialize in law and hire acarpenter to make her cabinets B. Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law C. Mary Jane is three times faster than any carpenter so she should giver up her law practice to become a carpenter D. When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour E. Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per hour

When the federal Reserve buys government securities on the open market, which of the following will decrease in the short run? (A) Interest rates (B) Taxes (C) investment (D) The account of money loaned by banks (E) The money supply

Which of the following actions by the Federal Reserve of the United States increases the money supply? (A) Buying government bonds on the open market (B) Selling government bonds on the open market (C) Increasing the reserve requirement (D) increasing the discount rate (E) Increasing the federal funds rate

Which of the following is an example of foreign direct investment? (A) A U.S. automobile manufacturer building a steel plant in Russia (B) A U.S. citizen purchasing corporate bonds issued by a French manufacturing firm (C) A Mexican citizen purchasing U.S. Treasury bills. (D) The Federal Reserve purchasing Japanese yen (E) Immigrant workers in the U.S. sending money to their native country

Which of the following is most likely to increase if the public decides to increase its holdings of currency? (A) the interest rate (B) the price level (C) disposable personal income (D) employment (E) the reserve requirement

Which of the following is true in the short run if consumers buy more imported goods and fewer domestic goods? (A) The trade balance moves toward deficit, and equilibrium income decreases. (B) The trade balance moves toward deficit, and equilibrium income increases. (C) The trade balance moves toward surplus, and equilibrium income is unaffected. (D) The trade balance moves toward surplus, and equilibrium income decreases. (E) The trade balance is unaffected, and equilibrium income decreases.

if the exchange rate between the United States dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would (A) depreciate, making United States imports from Britain more expensive (B) depreciate, making united States imports from Britain cheaper (C) appreciate, making United States imports from Britain more expensive (D) appreciate, making United States imports from Britain cheaper (E) purchase 3 times more British goods than before the change occurred

Which of the following could be a current account transaction?

A US firm sells $500 million of its products to a Chinese company

Which of the following is an example of foreign direct investment?

A United States automobile manufacturer building a steel plant in Russia

Which of the following could be a current account transaction?

A United States firm sells $500 million of its products to a Chinese company.

26) Which of the following will cause the United States dollar to depreciate relative to the euro? A) An increase in household income in the US B) An increase in interest rates in the US C) An increase in household income in Europe D) A decrease in interest rates in Europe E) A decrease in price level in the US

A) An increase in household income in the US

37) Which types of unemployment would increase if workers lost their jobs because of a recession? A) Cyclical B) Frictional C) Seasonal D) Search E) Structural

A) Cyclical

5) If the exchange rate between the US dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would A) depreciate, making US imports from Britain more expense B) depreciate, making US imports from Britain cheaper C) appreciate, making US imports from Britain more expensive D) appreciate, making US imports from Britain cheaper E) purchase 3 times more British goods than before the change occurred

A) depreciate, making US imports from Britain more expense

Specialization in comparative advantage

Allows for consumption beyond production the reason that countries specialize in the good they have comparative advantage in when trading

When firms restructure their operations to decrease production costs, the aggregate supply curve, the price level, and real output will change in which of the following ways?

Aggregate Supply Curve- shift to the right Price Level -Decrease Real output- Increase

If maginal business tax rates are decreased, how will aggregate supply and employment change in the long run?

Aggregate Supply: Increase Employment: Increase

In the short run, what is the effect on prices and output when the money supply increases?

Aggregate demand rises, pushing up prices and output.

If the value if the US dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

Aggregate demand will decrease

If the value of the US dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

Aggregate demand will decrease

If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

Aggregate demand will decrease

Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?

Aggregate demand will decrease because the demand for United States exports decreases

59. If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run? a. Aggregate demand will decrease. b. Aggregate demand will increase. c. Aggregate supply will decrease. d. Both aggregate demand and aggregate supply will decrease. e. Both aggregate demand and aggregate supply will increase.

Aggregate demand will decrease.

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?

Aggregate demand will increase

According to economist Arthur Laffer, tax revenues would increase if the tax rate were lowered, because

All of the above

Which of the following could cause a run on a goldsmith?

All of the above

Which of the following factors could induce a supply-side response?

All of the above

Which of the following factors would cause aggregate demand to fall?

All of the above

Which of the following is an additional role of the Fed?

All of the above are additional roles of the Fed.

Which of the following serves as a store of value?

All of the above serve as a store of value.

Governments may intervene in a market economy in order to

All of the above. (protect property rights, correct a market failure due to externalities, achieve a more equal distribution of income

Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run?

An increase in the price level and a decrease in the real wage

Assume that an economy is currently in long-run equilibrium, and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following in the economy in the short run?

An increase in the price level and a decrease in the real wage

A decrease in the prices of inputs will cause which of the following to occur in the short run?

An increase in the short-run aggregate supply and a decrease in the price level

In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve. If no policy action were taken, which of the following changes would move the economy to it's long run equilibrium?

An increase in wages

Which of the following statements about the long-run effect of an increase in the money supply is true?

As a result of lower interest rates, businesses may invest more, but the increase in the price level may reduce spending by foreigners and consumers.

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium

Acc. to the graph above, WOTF is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

According to the law of one price, if a particular bottle of perfume costs $2 in the United States and 200 yen in Japan, and if transaction costs are zero, the exchange rate should be A. 10 yen per dollar B. 100 yen per dollar C. 100 dollars per Yen D. 10 dollars per Yen E. 20 yen per dollar

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? A. United States interest rates B. the United States consumer price index C. demand for the dollar by the United States residents D. exports from the United States E. the tariff on goods imported into the United States

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? (A) United States interest rates (B) The United States consumer price index (C) Demand for the dollar by United States residents (D) Exports from the United States (E) The tariff on goods imported into the United States

An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run? Nominal Interest Rates / Bond Prices (A) Increase / No change (B) Increase / Decrease (C) No change / Increase (D) Decrease/ increase (E) Decrease / Decrease

An increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output? (A) Decrease Decrease (B) Decrease increase (C) Increase Decrease (D) Increase No change (E) No change Increase

An increase in the price level will most likely cause which of the following? (A) A leftward shift of the aggregate demand curve (B) An increase in the demand for money (C) An increase in the real interest rate (D) A decrease in the nominal interest rate (E) An increase in the supply of money

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true? (A) Country A has an absolute advantage in the production of wheat. (B) The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn. (C) The cost of producing a bushel of wheat in Country A is greater than 2.5 bushels of corn. (D) Country A is producing inside its current production possibilities curve. (E) Country A needs to use more resources to produce wheat than to produce corn.

Assume that the Federal Reserve pursues a contractionary monetary policy. Based on the resulting change in the interest rate, what will happen to the international value of the dollar, United States imports, and United States exports? International value of the dollar/U.S. imports/U.S. Exports (A) Increase/Increase/Increase (B) increase/increase/Decrease (C) Increase/Decrease/Increase (D) Decrease/Increase/Decrease (E) Decrease/Decrease/increase

Assume that the economy is in equilibrium. If AD increases, nominal interest rates and bond prices will most likely change in which of the following ways? Nominal Interest Rates Bond Prices (A) Increase increase (B) Increase Decrease (C) Increase No change (D) Decrease increase (E) Decrease Decrease

Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market? (A) The demand curve for the currency will shift to the right, and the currency will appreciate (B) The demand curve for the currency will shift to the left and the currency will depreciate. (C) The supply curve for the currency will shift to the left, and the currency will appreciate. (D) The supply curve for the currency will shift to the left, and the currency will depreciate. (E) There will be no shift in the demand curve for the currency, but the currency will depreciate.

Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of (A) $800 (B) $900 (C) $1,000 (D) $1,100 (E) $1,200

Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet? Liabilities/Required Reserves (A) Increase by $200/Increase by $170 (B) Increase by $200/increase by $30 (C) increase by $200/Not change (D) Decrease by $200/Decrease by $30 (E) decrease by $200/Decrease by $170

Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A$1 million increase in new reserves will result in (A) an increase in the money supply of $5 million (B) an increase in the money supply of less than $5 million (C) a decrease in the money supply of $1 million (D) a decrease in the money supply of $5 million (E) a decrease in the money supply of more than $5 million

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is (A) $2,000 (B) $8,000 (C) $10,000 (D) $20,000 (E) $50,000

Assume that the supply of loanable funds increases in Country X. The international value of Country X's exports will most likely change in which of the following ways? International Value of Country X's Currency/Country X's Exports (A) Decrease/Decrease (B) Decrease/Increase (C) Increase/Decrease (D) increase/Increase (E) Not change/Not change

Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate International Value of the Peso (A) Increase Appreciate (B) Increase Depreciate (C) Increase No change (D) Decrease Appreciate (E) Decrease Depreciate

If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true? (A) Alpha's currency will have appreciated relative to Beta's currency. (B) Alpha's currency will have depreciated relative to Beta's currency. (C) Alpha will have had lower nominal interest rates than Beta. (D) Alpha will have had slower growth in the money supply than Beta. (E) Alpha's economy will have grown at a faster rate than Beta's

If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways? Supply of Pesos Dollar Price of Pesos (A) Increase Increase (B) Increase Decrease (C) Decrease Increase (D) Decrease Decrease (E) Decrease Not change

If a country has a current account deficit which of the following must be true? (A) It must also show a deficit in its capital account. (B) It must show a surplus in its capital account. (C) It must increase the purchases of foreign goods and services. (D) it must increase the domestic interest rates on its bonds. (E) it must limit the flow of foreign capital investment.

If a country has a current account deficit, which of the following must be true? A. It must also show a deficit in its capital account B. It must show a surplus in its capital account C. It must increase the purchases of foreign goods and services D. It must increase the domestic interest rates on its bonds E. It must limit the flow of foreign capital investment

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports? International ValueOf the Dollar Exports A. Increase Increase B. Increase Decrease C. Increase No change D. Decrease Increase E. Decrease Decrease

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports? International Value of the Dollar/Exports (A) Increase/Increase (B) Increase/Decrease (C) Increase/No change (D) Decrease/Increase (E) Decrease/Decrease

If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its currency,' and its exports? Capital Flow Currency Exports (A) Inflow Appreciation Increase (B) Inflow Appreciation Decrease (C) inflow Depreciation Decrease (D) Outflow Depreciation Increase (E) Outflow Appreciation Decrease

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow (A) into the United States and the dollar will depreciate (B) into the United States and the dollar will appreciate (C) out of the United States and the dollar will depreciate (D) out of the United States and the dollar will appreciate (E) out of the United States and the value of the dollar will not change

In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways? Value of Currency Trade Deficit (A) Appreciate Become smaller (B) Appreciate Become larger (C) Depreciate Become smaller (D) Depreciate Become larger (E) Not change Not change

Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true? (A) The borrower would benefit. (B) The lender would benefit. (C) The real interest rate would be lower than expected. (D) The nominal interest rate would be higher than expected. (E) The nominal interest rate would increase.

Of the following, the most liquid asset is (A) mutual funds (B) currency (C) time deposits (D) demand deposits (E) savings deposits

Suppose the required reserve ration is 20 percent and a single bank with no excess reserves receives a $100 deposit from a new customer. The bank now has excess reserves equal to (A) $20 (B) $80 (C) $100 (D) $400 (E) $500

The cost of reducing unemployment is accepting a higher rate of inflation." This statement would most likely be made by a person who believes in the A. Quantity theory of money B. Phillips curve C. Theory of rational expectations D. Paradox of value E. Liquidity trap

The federal funds rate is the interest rate that (A) the Federal Reserve charges the federal government on its loans (B) banks charge one another for short-term loans (C) banks charge their best customers (D) equalizes the yield on government bonds and corporate bonds (E) is equal to the inflation rate

The price of one nation's currency expressed in terms of another nation's currency is (A) the world price (B) the exchange rate (C) the law of one price (D) terms of trade (E) purchasing -power parity

The purchase of United States government bonds by Japanese investors will be included in Japan's (A) current account (B) financial account (formerly called capital account) (C) trade deficit (D) foreign direct investment (E) imports

Which of the following is true of the quantity of money demanded? (A) It rises when interest rates rise, because the return from holding money increases (B) It falls when interest rates rise, because the opportunity cost of holding money increases (C) It remains constant when interest rates rise, as long as inflation remains constant eases (D) it rises when interest rates rise, as long as inflation is declining. (E) It falls when the money supply increases, as long as inflation remains constant

Which of the following policy combinations is most likely to cure a severe recession? Open-Market Operations/Taxes/Government Spending (A) Buy securities/Increase/Decrease (B) Buy securities/Decrease/increase (C) Buy securities/Decrease/Decrease (D) Sell securities/Decrease/Decrease (E) Sell securities/Increase/increase

Which of the following statements best describes the impact of a decrease in Japanese income on AD in the U.S. (A) There will be no change in AD because U.S. AD depends only on the income of U.S. consumers (B) AD will decrease because the demand for U.S. exports decreases. (C) AD will decrease because the value of the U.S. dollar decreases relative to the Japanese yen. (D) AD will increase because a decrease in income in Japan causes an increase in income in the U.S. (E) AD will increase because interest rates in the U.S. decrease.

Which of the following will cause an increase in aggregate demand? (A) An increase in the price level (B) A decrease in income taxes (C) An increase in the demand for money (D) A decrease in the supply of money (E) A decrease in government transfer payments

Which of the following would cause the United States dollar to increase in value compared to the Japanese yen? (A) An increase in the money supply in the United States (B) An increase in interest rates in the United States (C) An increase in the United States trade deficit with Japan (D) The United States purchase of gold on the open market (E) The sale of $2 billion dollars worth of Japanese television sets to the United States

Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run?

An inflationary gap could be reduced by (A) an increase in government spending (B) an increase in the supply of money (C) an increase in the income tax rate (D) a decrease in the discount rate (E) a decrease in the reserve requirement

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways? Imports Exports (A) Decrease Decrease (B) Decrease Increase (C) Increase Decrease (D) Increase Increase (E) No change No change

The central authority of the U.S. banking system is the

Board of Governors of the Federal Reserve.

In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations?

Bond Prices - Increase. Interest rates - Decrease

In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations?

Bond prices would INCREASE Interest rates would DECREASE

_____________ are entitled to the first claim to returns on investments.

Bondholders

Which of the following statements is true?

Bonds are debt instruments, while stocks are equity instruments.

Public policy that generates an unexpected increase in consumer prices will inflict short run costs on all of the following except-

Borrowers

A decrease in business taxes would lead to an increase in national income by increasing which of the following?

Both aggregate demand and aggregate supply

An economy increases its level of physical capital per worker by increasing the level of investment spending. This can be achieved by:

Both having the domestic residents spend less of their income on consumption while increasing their domestic saving...and borrowing foreign savings from residents of other countries

If the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

Both will decrease in the short run

According to both monetarists and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate? (A) the demand for money decreases and market interest rates decrease (B) the demand for money increases and market interest rates increase (C) the supply of money increases and market interest rates decrease (D) the supply of money increases and market interest rates increase (E) both the demand for money and the supply of money increase and market interest rates increase

All of the following changes will shift the investment demand curve to the right EXCEPT (A) a decrease in the corporate income tax rate (B) an increase in the productivity of new capital goods (C) an increase in the real interest rate (D) an increase in corporate profits (E) an increase in real gross domestic product

An increase in United States imports will result in which of the following in foreign exchange markets? (A) Increased foreign demand for United States dollars (B) Decreased supply of United States dollars (C) Increased United States demand for foreign currencies (D) A decrease in the value of foreign currencies (E) An increase in the value of the United States dollar

Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run? Interest Rates / Investment (A) Increase / Increase (B) Increase / Decrease (C) Decrease / Increase (D) Decrease / Decrease (E) No change / Increase

Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand? Net Exports / Aggregate Demand (A) Decrease / Decrease (B) Decrease / No change (C) Increase / Increase (D) Increase / Decrease (E) Increase / No change

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to (A) pursue an expansionary monetary policy because it is required to do so by law whenever output is below the full employment level (B) pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the full-employment level (C) lower the discount rate and buy bonds on the open market to generate an increase in output (D) lower the discount rate and sell bonds on the open market to generate an increase in output (E) raise the discount rate and lower the required reserve ratio to generate an increase in output

If nominal gross domestic product in a country is $1,600 and the money supply is $400, what is the velocity of money? (A) 400 (B) 10 (C) 4 (D) 2 (E) 0.5

If the economy is in a severe recession, which of the following policy actions is most appropriate? (A) Keeping the money supply constant and reducing budget deficits (B) Decreasing government spending and taxes by the same amount (C) Increasing both the money supply and government spending (D) Increasing both the federal funds rate and taxes (E) Decreasing the money supply and increasing taxes

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of (A) the unemployment rate (B) real output (C) the price level (D) nominal interest rates (E) real interest rates

In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations? Bond Prices/Interest Rates (A) No change / Increase (B) Increase / Increase (C) Increase / Decrease (D)Decrease / Increase (E) Decrease / Decrease

Open market operations refer to which of the following activities? (A) The buying and selling of stocks in the New York stock market (B) The loans made by the Federal Reserve to member commercial banks (C) The buying and selling of government securities by the Federal Reserve (D) The government's purchases and sales of municipal bonds (E) The government's contribution to net exports

The table below indicates the number of labor hours required in Countries X and Y to produce one unit of food or one unit of clothing. Country/Food/Clothing X/20 hours/50 hours Y 10 hours/20 hours Given this information, which of the following statements is correct? (A) X has a comparative advantage in the production of both food and clothing (B) Y has a comparative advantage in the production of both food and clothing (C) X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production (D) Y has a comparative advantage in food production, whereas X has a comparative advantage in clothing production (E) Neither country has a comparative advantage in the production of either good

When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes? (A) Transactions (B) Unforeseen expenditures (C) Speculation (D) Illiquidity (E) Exchange

Which of the following government policies can reduce the rate of inflation in short run? (A) Providing investment tax credits for businesses (B) Reducing personal income tax rates (C) Selling bonds on the open market (D) Decreasing the reserve requirement (E) Decreasing the discount rate

Which of the following is NOT a function of flat money? (A) A standard of deferred payment (B) A unit of account (C) A Source of intrinsic value (D) A store of value (E) A medium of exchange

Which of the following is most likely to occur when the Fed buys government bonds on the open market? (A) The demand for money will decrease (B) The government's debt will decrease (C) Interest rates will decrease (D) The discount rate will increase (E) Investment demand will decrease

Which of the following most likely occur in an economy if more money is demanded than is supplied? (A) The amount of investment spending will increase. (B) Interest rates will decrease, (C) Interest rates will increase. (D) The demand for money will shift to the left. (E) The demand curve for money will shift to the right.

Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? (A) An open-market purchase of government securities by the central bank and a decrease in the the federal funds rate (B) An open-market sale of government securities by the central bank and an increase in the federal funds rate (C) A decrease in taxes and an open-market purchase of government securities by the central bank (D) An increase in government spending and an open-market sale of government securities by the central bank (E) An increase in taxes and an increase in the federal funds rate

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. What will these nations trade?

China will export shirts, while the United States will export aircraft

Which of the following statements about commodity money is true?

Commodity money has intrinsic value.

With an increaser in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?

Consumption will decrease while Real Gross Domestic Product Decreases

Aggregate demand may be measured by adding:

Consumption, investment, government spending, and net exports

With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?

Consumption: Decrease RGDP: Decrease

Downward slope from crest to trough

Contraction

Using equal amounts of labor hours, Country X and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true?

Countries X and Y can engage in mutually advantageous trade by exchanging 1 watch for 1 radio

An increase in Japan's demand for United States goods would cause the value of the dollar to A. depreciate because of inflation B. depreciate because the United States would be selling more dollars to Japan C. depreciate because the United States money supply would increase as exports rise D. appreciate because Japan would be buying more United States dollars E. appreciate because Japan would be selling more United States dollars

An increase in the money supply will have the greatest effect on real GDP if (A) the marginal propensity to consume is low (B) unemployment is very low (C) investment spending is not sensitive to interest rates (D) the quantity of money demanded is not very sensitive to interest rates E) the required reserve ratio is high

As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements? I. Allocation of domestic resources II. Standard of living III. Self-sufficiency (A) I only (B) II only (C) III only (D) I and II only (E) I, II, and III

Assume that the reserve requirement for demand deposits is 20 percent, that the banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will A) increase by $10,000 B) increase by $50,000 C) decrease by $10,000 D) decrease by $50,000 E) not change

BANK A Assets/ Liabilities Actual reserves $1,000/ Demand deposits $5,000 Loans $4,000 BANK B Assets/ Liabilities Actual reserves $100/ Demand deposits $600 Loans $500 BANK C. Assets/ Liabilities Actual reserves $10/ Demand deposits $100 Loans $90 Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent? (A) Bank A has no excess reserves. (B) Bank B has no excess reserves. (C) Bank B can increase its loans by $500. (D) Bank B can increase its loans by $40. (E) Bank C has excess reserves.

Comparative advantage implies that (A) no country should specialize completely in the production of any one good (B) every country should try to export more than it imports (C) developing countries should import raw materials and export manufactured goods (D) two countries should benefit from trade unless both have equal opportunity costs in every good (E) countries should impose tariffs to protect their domestic industries

If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following? (A) Slow economic growth (B) An appreciating domestic currency (C) Rising unemployment (D) Rising price levels (E) Rising imports and declining exports

If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000? (A) $100,000 (B) $90,333 (C) $10,000 (D) $9,000 (E) $1,000

If a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways? Money Supply Interest Rate Value of the Dollar A. Increase Decrease Decrease B. Increase Decrease Increase C. Decrease Decrease Decrease D. Decrease Increase Increase E. Decrease Increase Decrease

If other things are held constant, an increase in United States imports will (A) tend to cause the dollar to appreciate because the world supply of dollars will rise (B) tend to cause the dollar to appreciate because the world demand for dollars will rise (C) have no effect on the exchange rate for the dollar because exports will also increase (D) tend to cause the dollar to depreciate because the world supply of dollars will rise (E) tend to cause the dollar to depreciate because the world demand for dollars will rise

If other things are held constant, an increase in the United States imports will A. tend to cause the dollar to appreciate because the world supply of dollars will rise. B. tend to cause the dollar to appreciate because the world demand for dollars will rise. C. have no effect on the exchange rate for the dollar because exports will also increase. D. tend to cause the dollar to depreciate because the world supply of dollars will rise. E. tend to cause the dollar to depreciate because the world demand for dollars will rise.

If the Fed pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run? Output Price Level (A) Increase increase (B) Increase No change (C) Increase Decrease (D) Decrease Decrease (E) Decrease increase

If the Federal Reserve institutes a policy to reduce inflation, which of the following is most likely to increase? (A) Tax rates (B) Investment (C) Government spending (D) Interest rates (E) Gross domestic product

If the Federal Reserve lowers the reserve requirement, which of the following would most likely occur? (A) Imports will rise, decreasing the trade deficit. (B) The rate of saving will increase. (C) Unemployment and inflation will both increase. (D) Businesses will purchase more factories and equipment. (E) The budget deficit will increase.

If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways? A. Long-run capital outflows from the United States will decrease. B. Long-run capital inflows from the United States will decrease. C. Short-run capital outflows from the United States will decrease. D. Short-run capital inflows to the United States will decrease. E. Short-run capital inflows to the United States will not change

If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways? (A) Long-run capital outflows from the U.S. will decrease (B) Long-run capital inflows to the United States will increase (C) Short-run capital outflows from the U.S. will decrease (D) Short-run capital inflows to the U.S. will decrease (E) Short-run capital inflows to the U.S. will not change

If the real interest rates in the U.S. rise relative to rates in other countries, what will happen to the international value of the U.S. dollar and the U.S. net exports? Value of the Dollar Net Exports (A) Depreciate Increase (B) Depreciate Decrease (C) Depreciate No change (D) Appreciate Decrease (E) Appreciate Increase

If the required reserve ratio is 10 percent, required reserves are $10 million, and currency in circulation is equal to $20 million, M One will at most be equal to A) $20 million B) $30 million C) $90 million D) $120 million E) $150 million

If the reserve requirement is 20 percent, the existence of $100 worth of excess reserves in the banking system can lead to a maximum expansion of the money supply equal to (A) $20 (B) $100 (C) $300 (D) $500 (E) $750

If two nations specialize according to the law of Comparative advantage and then trade with each other, which of the following would be true? (A) A smaller number of goods would be available in each trading nation (B) Total world production of goods would decrease. (C) Everyone within each nation would be better off. (D) Each nation would increase its consumption possibilities. (E) One nation would gain at the expense of the other nation.

Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result? (A) The two countries will become more independent of each other. (B) Unemployment will increase in one country and decrease in the other. (C) There will be more efficient production in one country but less efficient production in the other. (D) Both countries will become better off. (E) Both countries will be producing their commodity inefficiently.

The money demanded for the purpose of purchasing goods and services is known as (A) an asset demand (B) a derived demand (C) excess reserves (D) a transactions demand (E) balance of payments

The transaction demand for money is very closely associated with money's use as a (A) store of value (B) standard unit of account (C) measure of value (D) medium of exchange (E) standard of deferred payment

When a central bank sells securities in the open market, which of the following set of events is most likely to follow? (A) An increase in the money supply, a decrease in interest rates, and an increase in aggregate demand (B) An increase in the money supply, an increase in interest rates, and a decrease in aggregate demand (C) An increase in interest rates, and increase in the government budget deficit, and a movement toward trade surplus (D) A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand for (E) A decrease in the money supply, a decrease in interest rates, and a decrease in aggregate demand

Which of the following is most likely to benefit from an appreciation in the United States dollar in the short run? (A) United States investors holding European bonds (B) Importers in foreign countries seeking raw inputs at a lower price (C) United States exporters selling capital equipment (D) United States tourists traveling to foreign countries (E) European consumers buying United States goods

Which of the following will lead to a decrease in a nation's money supply? (A) A decrease in income tax rates (B) A decrease in the discount rate (C) An open market purchase of government securities by the central bank (D) An increase in reserve requirements (E) An increase in government expenditures on goods and services

Which of the following would be a current account transaction? (A) India buys $10 billion of new U.S. Treasury bonds. (B) A U.S. firm buys 5% of the stock of another U.S. firm. (C) A U.S. firm buys 5% of the stock of another U.S. firm. (D) A U.S. firm sells $500 million of its products to a Chinese company. (E) The U.S. buys $8 billion worth of euros.

Upward slope from trough to crest

Expansion

According to the new Keynesians, which of the following does not explain why output can rise above the full-employment level in the short run?

Expectations are fully rational.

The Fed can directly control the money supply

False

The Federal Reserve Bank guarantees the value of a dollar bill.

False

Refer to the given market-for-money diagrams. The total demand for money is shown by

D3.

If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds to the open market, the money supply will...

Decrease by a maximum of $100,000

Which of the following are the most likely short-run effects of an increase in government expenditures?

Decrease in Unemployment Rate, Increase in Inflation Rate, and Increase in Real GDP

37. Which of the following will lead to a depreciation of a nation's currency? a. Lower inflation in the nation than in the rest of the world b. Higher required reserve ratio in the nation than in the rest of the world c. Decreased real interest rates in the nation compared with the rest of the world d. Increased demand for the nation' s currency e. Decreased supply of the nation' s currency

Decreased real interest rates in the nation compared with the rest of the world

Which of the following will lead to a depreciation of a nation's currency?

Decreased real interest rates in the nation compared with the rest of the world

Which will lead to a depreciation of a nations currency?

Decreased real interest rates in the nation compared with the rest of the world

Which of the following would be included as a liability on a commercial bank's balance sheet?

Demand Deposits

If a French firm buys computers from the US, there would be an increase in which of the following in the foreign exchange market?

Demand for US dollars and supply of euros

If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?

Demand for United States dollars and supply of euros

What is likely to be the effect of a government-imposed ceiling on interest rates below equilibrium?

Demand for loanable funds will exceed supply, and some businesses will be unable to borrow.

An increase in government spending will affect the demand for money and nominal interest rate in which of the following ways?

Demand for money= increase Nominal Interest Rates= Indeterminate

Suppose that the federal reserve is committed to keeping the nominal interest rate fixed. To maintain the interest rate target in the face of an expansionary fiscal policy, the Federal reserve can do which of the following?

Engage in open-market purchases

An increase in the international value of the United States dollar will most likely benefit (A) domestic producers of premium wines sold to people in other countries (B) currency traders holding large quantities of yen (C) German citizens vacationing in the United States (D) Canadian citizens expecting to purchase real estate in the United States (E) retired United States citizens living overseas on their social security checks

Assume Astobia and Bonavia are countries that exercise free trade. If the real interest rate in Astobia decreases in comparison to Bonavia's real interest rate, then for Bonavia's real interest rate, then for Bonavia which of the following would be true of capital flow, the value of its currency, and its exports? Capital Flow Currency Exports A. outflow appreciation decrease B. outflow appreciation increase C. inflow depreciation decrease D. inflow depreciation decrease E. inflow appreciation decrease

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will (A) decrease by more than half (B) decrease by half (C) decrease by less than half (D) exactly double (E) increase by less than double

Commercial banks can create money by (A) transferring depositors' accounts at the Federal Reserve for conversion to cash (B) buying Treasury bills from the Federal Reserve (C) sending vault cash to the Federal Reserve (D)maintaining a 100 percent reserve requirement (E) lending excess reserves to customers

During a mild recession, if policy makers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate? (A) Equal increases in government expenditure and taxes (B) An increase in government expenditure only (C) an increase in transfer payments (D) an increase in the reserve requirement (E) purchase of government securities by the Federal Reserve

Expansionary monetary policy can affect the economy through which of the following chains of events? (A) increasing the discount rate lowers the real interest rate, which raises investment. (B) Reducing taxes lowers the discount rate, which raises consumption. (C) Increasing government expenditures lowers the interest rate, which raises investment. (D) Increasing the reserve requirement decreases the interest rate, which increases investment (E) Buying bonds increases the money supply, which lowers the interest rate.

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply? Unemployment Rate/ Inflation Rate (A) 10% / 2% (B) 10% / 5% (C) 10% / 10% (D) 5% / 5% (E) 5% / 10%

If an economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in (A) the velocity of money (B) real output (C) interest rates (D) unemployment (E) the price level

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways? Money Multiplier / Money Supply (A) Increase / Increase (B) Increase / Decrease (C) Increase / No change (D) Decrease / No change (È) Decrease / Decrease

Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market? (A) An increase in the demand for Country A's currency (B) An increase in the supply of Country B's currency (C) A decrease in the supply of Country A's currency (D) A decrease in the demand for Country B's currency (E) A depreciation of Country A's currency

Which of the following can be expected to cause an increase in gross domestic product in the short run?

Equal increases in both taxes and government expenditures

Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. The combined actions will result in (A) an increase in unemployment and a decrease in the interest rate (B) an increase in unemployment and an increase in the interest rate (C) an increase in the real gross domestic product and a decrease in the interest rate (D) an increase in the real gross domestic product and an increase in the interest rate (E) an increase in the real gross domestic product and an indeterminate change in the interest rate

Tariffs are different from assigned import quotas in that tariffs will (A) restrict imports (B) increase the price of imported goods (C) benefit domestic consumers of imported goods (D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government

The Federal Reserve decreases the federal funds rate by (A) decreasing the reserve requirement (B) decreasing the discount rate (C) increasing the discount rate (D) selling government bonds on ihe open market (E) buying government bonds on the open market

The required reserve ratio is 0.2 and the Fed sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply? (A) An increase of $1 million (B) An increase of $1.2 million (C) An increase of $5 million (D) A decrease of $1.2 million (E) A decrease of $5 million

Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan (C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interest rates in india increase relative to those in Japan

Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds? Demand for Dollars International Value of the Dollar A. Decrease Decrease B. Decrease Increase C. Decrease No change D. Increase Decrease E. Increase Increase

Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds? Demand for Dollars/international Value of the Dollar (A) Decrease/Decrease (B) Decrease/Increase (C) Decrease/No change (D) increase/Decrease (E) Increase/increase

Which of the following is a determinant of the amount of money the commercial banking system can create? (A) The marginal propensity to consume (B) The marginal propensity to save (C) The total number of banks (D) The size of the federal debt (E) The reserve requirement

Which of the following is true of the opportunity cost of holding cash? (A) It is zero. (B) It is represented by the value of the dollar. (C) It is equal to the price level. (D) It decreases as the price level rises. (E) It increases as the interest rate rises.

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate Quantity of Money (A) Increase Decrease (B) Increase Not change (C) Decrease Decrease (D) Decrease increase (E) Decrease Not change

The Federal Reserve Bank is a type of commercial bank

False

58) Which of the following would cause the short-run aggregate supply curve to shift to the right? A) An increase in the wage rate B) An increase in the interest rate C) An increase in the natural rate of unemployment D) A decrease in the capital stock E) A decrease in the expected price level

E) A decrease in the expected price level

56) Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product? A) Government bonds B) Shares of a company stock C) Corporate bonds D) A new car for personal use E) A newly constructed home

E) A newly constructed home

3) With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate............ Quantity of Money A) Increase........ Decrease B) Increase........ Not change C) Decrease........ Decrease D) Decrease........ Increase E) Decrease........ Not change

E) Decrease........ Not Change

4) An increase in aggregate supply will most likely cause income and employment to change in which of the following ways? Income........ Employment A) Decrease........ Decrease B) Decrease........ Increase C) No change........ Increase D) Increase........ Decrease E) Increase........ Increase

E) Increase........ Increase

47) Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. The combined actions will result in A) an increase in unemployment and a decrease in the interest rate B) an increase in unemployment and an increase in the interest rate C) an increase in the real gross domestic product and a decrease in the interest rate D) an increase in the real gross domestic product and an increase in the interest rate E) an increase in the real gross domestic product and an indeterminate change in the interest rate

E) an increase in the real gross domestic product and an indeterminate change in the interest rate

45) The Federal Reserve decreases the federal funds rate by A) decreasing the reserve requirement B) decreasing the discount rate C) increasing the discount rate D) selling government bonds on the open market E) buying government bonds on the open market

E) buying government bonds on the open market

If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities

If two nations specialize according to the law of comparative advantage a nd then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities.

When the entire production possibility curve shifts to the right

Economic growth fueled by technology, education, health, immigration

The natural rate of unemployment is defined as the-

Economy's long run equilibrium rate of unemployment

Labor Force

Employed + Unemployed

Country A both imports and produces tea. If Country A imposes a tariff on imported tea, which of the following will occur?

Employment in the domestic tea industry will increase

Which three factors define a bond?

Face value, coupon rate, maturity date

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

Falling wages will shift the aggregate supply curve to the right, producing full employment.

An expansionary monetary policy is one that reduces the supply of money.

False

Consider the Laffer curve below. If t* is the point of maximum tax revenue, people will tend to work harder at a tax rate of t2 than at a tax rate of t1.

False

Economist Adam Smith proposed the theory that increasing the price level will increase productivity and output.

False

Excess reserves are the amount by which required reserves exceed actual reserves.

False

Excess supply of loanable funds causes an upward adjustment of the interest rate.

False

Households can choose to trade currency for gold.

False

If the reserve requirement is 20 percent, the monetary multiplier will be 4.

False

New classical economists believe that the rationality of people who save in preparation for higher future taxes shifts the aggregate demand curve outward.

False

WOTF will lead to an increase in the US gross domestic product?

Foreign companies build new assembly plants in the United States.

Which of the following will lead to an increase in the United States GDP?

Foreign companies build new assembly plants in the United States.

Which of the following chains of events explains how government spending crowds out investment spending?

Government spending increases, raising output, raising prices, raising the demand for money, raising interest rates, lowering investment.

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what rang of real gross domestic product is the economy currently producing?

Greater than Y2

Which of the following is most likely to cause an increase in the international value of the United States dollar?

Higher United States real interest rates

Change in expectations (shifter of demand)

If I expect gas prices to go up in 3 days, I am going to spend money now and get gas even if I don't need it that bad in order to save myself from spending more money when the price increases. If price is increasing in the near future, the demand increases in the now. If the price is decreasing the near future, the demand decreases in the now.

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

Income and Employment both increase

17. An increase in which of the following would cause the aggregate demand curve to shift to the left?

Income taxes

An increase in which of the following would cause the aggregate demand curve to shift to the left?

Income taxes

Which of the following combinations of changes in government spending and taxes in necessarily expansionary?

Increase Government spending an Decrease Taxes

36. Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level? Output Price Level a. Decrease Decrease b. Decrease Increase c. Indeterminate Increase d. Increase Indeterminate e. Increase Increase

Increase Indeterminate

Crowding out is most likely to occur with which of the following changes?

Increase in budget deficit

With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely

Increase real gross domestic product

Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy's marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following?

Increase spending by $150 billion.This answer is correct.

Which of the following statements regarding the long-run aggregate supply (LRAS) curve is true?

Increased immigration can shift the LRAS curve outward.

Which of the following does not occur as a result of automatic stabilizers?

Increases in income cause greater increases in consumer spending than they otherwise would.

Which of the following factors would not cause the equilibrium level of output to increase?

Increases in the money supply

If the economy is in a severe recession, which is most appropriate?

Increasing both the money supply and government spending

If the economy is in a severe recession, which of the following policy actions is most appropriate

Increasing both the money supply and government spending

Which of the following is an example of fiscal policy?

Increasing government expenditures to build highways

Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession?

Increasing government spending and decreasing the Federal funds rate

Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession?

Increasing government spending and decreasing the federal funds rate

Which of the following does not represent a form of expansionary fiscal policy?

Increasing the money supply

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy?

Interest Rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease.

Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run?

Interest Rates= Decrease Investment= Increase

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

Interest rate will decrease and Quantity of money will not change

Which of the following statements is correct?

Interest rates and bond prices vary inversely.

If the govemrnet simultaneously engages in expansionary monetary and fiscal policies, whci of the following is the likely effect on interest rates and unemployment?

Interest rates are indeterminate Unemployment decreases

What is the effect on interest rates and the money supply when the Fed lowers the reserve requirement?

Interest rates fall, and the money supply increases.

If the Federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

Interest rates will decrease

Which of the following will most likely occur when the Federal Reserve buys government bonds on the open market?

Interest rates will decrease

If the Federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

Interest rates will decrease.

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy?

Interest rates would increase; investment and consumption spending would decrease; aggregate demand decreases; and output prices decrease.

What would be the effect of an increase in the demand for loanable funds at every interest rate?

Interest rates would rise.

How is investment spending affected by an increase in the budget deficit?

Investment spending is crowded out by the increase in the budget deficit.

An increase in which of the following is most likely to promote economic growth?

Investment tax credits

Assume that the economy is at full employment. Policymakers which to maintain the price level but want to encourage greater investment. Which of the following combinations of monetary and fiscal policies would best achieve this goal?

Monetary Policy= expansionary Fiscal Policy= contractionary

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product.

Which of the following statements is not consistent with the monetarists' views of the economy?

Monetary policy should be used to stimulate demand.

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways?

Money Multiplier= Decrease Money Supply= Decrease

Which of the following regarding money is not true?

Money is backed by gold.

If the central bank raises the required reserve ratio, the money multiplier and the money supply. Will change

Money multiplier decreases, money supply decreases

Unlike a market economy, a command economy uses:

More centralized planning in economic decision making

(Would be a graph with 3 different production possibilities curves) If the current curve in PPC1(in the middle) what change indicates a recession?

Movement from point Y to point Z (aka a shift left)

Which of the following statements regarding municipal bonds is true?

Municipal bonds pay lower interest rates because of their tax advantages.

We measure GDP with

National accounts

Following a decrease in the real interest rate, there is an increase in the financial capitial outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand?

Net Exports-increase, Aggregate Demand-increase

An American buys a pair of shoes manufactured in Italy. How do the U.S. national income accounts treat the transaction?

Net exports fall, while GDP is unchanged

Net exports increase, AD increases

Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good?

No change in supply and decrease in demand

Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good?

No change in supply; Decrease in the demand

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

No change in the number of workers, decreased unemployment rate

Under rational expectations, an announced expansion in the money supply will change nominal and real gross domestic products (GDP) in which of the following ways?

Nominal GDP: increase Real GDP: No change

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

Nominal Interest Rate= Increase Aggregate Demand= Decrease

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

Nominal interest Rate= Decrease Employment= Indeterminate

Nominal Interest rate

Nominal interest rate = real interest rate + expected inflation ie: expected inflation: 5% real interest rate: 10% nominal interest rate: 15%

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

Nominal interest rate decreases and employment is indeterminate

Change in income (shifter of demand)

Normal good- what people buy when their incomes allow them to have the extra money to. Usually name brand things Inferior goods- things people resort to buying when their income decreases and money is tight. example: cheese nips v. cheezits increase in income shifts demand curve to the right decrease in income shifts demand curve to the left

Point located to the left of the production possibility curve

Not efficient

Which of the following is one of the factors that makes the use of fiscal policy difficult?

Once programs have been established, it is difficult to cut spending.

In practice, which tool does the Federal Reserve use most often to increase or decrease the money supply?

Open market operations

The Fed's most commonly used tool of monetary policy is

Open market operations

Which of the following will lead to an increase in the money supply?

Open market purchase of securities by the central bank

When an economy is operating below the full employment level of output, an appropriate monetary policy would be to increase which of the following?

Open market purchases of government bonds

Which of the following will lead to an increase in the money supply?

Open-market purchase of securities by the central bank

In a economy in which all prices, including wages are completely flexible, an increase in labor productivity will result in which of the following changes in output and real wages?

Output and Real Wages both increase

What do most economists believe is the short-run effect on the real economy when the money supply increases?

Output increases, because interest rates fall.

According to monetarists, what is the effect of an increase in the money supply?

Output remains constant, and prices rise.

According to the new classical view of the macroeconomy, what might be the effect on output of an increase in aggregate demand?

Output remains unchanged, and prices rise.

Price floors create

Surplus

Which of the following would most likely stimulate economic growth?

Technological progress

An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in which of the following?

The US CPI

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?

The United States consumer price index

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?

The United States consumer price index.

What is the short-term effect of expanding the money supply?

The aggregate demand curve shifts outward

Which of the following statements describes what happens to a bank's balance sheet when a customer opens up a checking account

The checking account appears as a liability, which is balanced on the asset side by the required reserves and the loan made with the depositor's funds.

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true?

The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn

Assume country A exports one bushel of wheat in exchange for 2.5 bushels of corn from country B. If the terms of trade are beneficial to both countries-

The cost of producing a bushel of wheat in country A is less than 2.5 bushels of corn

Potential gross domestic product will decrease under which of the following conditions?

The country's annual depreciation is greater than its annual gross investment.

The demand curve for currency will shift to the left, and the currency will depreciate

Gross Domestic Product has been criticized as a measure of well-being because it fails to take into account which of the following?

The distribution of Income

Which of the following does NOT add to U.S. gross domestic product?

The federal government sends a Social Security check to your grandmother

Which of the following is true if exchange rates are freely floating?

The free market forces of demand and supply determine the equilibrium exchange rates

Which of the following describes how goldsmiths create money?

The goldsmith issues deposit slips for the gold he holds for other people, which begin to be accepted as a medium of exchange.

Which policy tools could be used to deal with an autonomous decrease in aggregate demand?

The government could offset the drop in consumer spending with spending of its own.

From one year to the next, inflation falls from 5 to 4 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change?

The government cuts spending and raises taxes to reduce the budget deficit.

What is the mechanism by which the economy returns to the full-employment level of output following an increase in aggregate demand?

The increase in the price level causes the short-run supply curve to shift to the left.

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?

The inflation rate was negative

An increase in which of the following would LEAST likely increase labor productivity?

The labor force

Country A's growth rate per capita GDP has been consistently higher than that of country B. Which of the following factors can account for these differences in the per capita GDP growth rates?

The labor force of country A is becoming more skilled then the labor force of country B

What is economic growth measured in?

The long run

Which of the following would indicate that economic growth has occurred?

The long-run aggregate supply curve shifts to the right.

The shifting of a country's production possibilities curve to the right will most likely cause:

The long-run aggregate supply curve to shift to the right

Scarcity

The main concept of economics There are unlimited wants but limited resources

Which of the following is a determinate of the amount of money commercial banking system can create?

The marginal propensity to save or the total number of banks

What happens to the money supply if the Federal Reserve reduces the required reserve ratio?

The money supply increases.

Which of the following statements is not consistent with the new Keynesians' views of the economy?

The money supply should be kept stable.

If the value of a nation's imports exceeds the value of its exports, which of the following is NOT true?

The nation is experiencing a net outflow of capital

Which of the following will occur if the U.S. government purchases Treasury bills?

The national debt declines.

Suppose that the Fed lowers the required reserve ratio. Which of the following events will most likely occur?

The new long-run equilibrium at full employment will be at a higher aggregate price level.

Slope of the line of the Production Possibilities Curve

The opportunity cost for the horizontal label

Labor force participation rate

The percentage of working age people in the labor force ie: population- 120 under 16- 20 military- 10 Not looking- 20 part time- 40 Working age population- 100 labor force- 70 labor force participation rate: 70%

If the nominal gross domestic product (GDP) of the nation of Hypothetica increased in 2007 relative to the previous year, it must be true that in Hypothetica in 2007:

The price level and/ or the real GDP has increased

If a reduction in aggregate demand, is followed by an increase in aggregate demand, which of the following will definitely occur?

The price level will increase

If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?

The price level will increase.

A change in which of the following will not shift the demand curve for hamburgers?

The price of hamburgers

Which of the following ideas can we infer about the market for loanable funds as depicted in the graph below?

The price of the bond will be bid upward.

Suppose that the consumer prie index rises from 100 to 200. From this information we may conclude that:

The prices in an average consumers market are doubled

Which of the following is most likely to result from an increase in the money supply?

The prices of bonds will increase.

Which of the following is not a monetary policy tool of the Fed?

The prime rate

Which of the following is not a tool used by the Federal Reserve to increase or decrease the money supply?

The prime rate

Which of the following would increase the money supply?

The purchase of government securities by the Federal Reserve

The purchase of bonds by the Federal reserve will have the greatest effect of real gross domestic product if which of the following situations exists in the economy?

The required reserve ratio is low, and the interest rate has a large effect on investment spending

Which of the following is a determinant of the amount of money the commercial banking system can create?

The reserve requirement

Which of the following groups makes up the Federal Open Market Committee (FOMC)?

The seven-member Board of Governors plus five presidents of the twelve district banks

What was the effect on prices and output when oil prices rose in the 1970s?

The short-run aggregate supply curve shifted to the left, output declined, and prices rose.

Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity?

The short-run aggregate supply curve would shift to the left, increasing the price level.

Which of the following is affected by the rate of interest?

The supply of and demand for loanable funds

Which of the following statements must be true if the Gross Domestic Product is greater than the money supply?

The velocity of money is greater than one.

Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. His roommate takes half as long to do each task. How should the roommates allocate the work?

There are no gains from trade in this situation

Structural unemployment

There are not enough jobs available at a high enough wage for the amount of people that need one ie: a typewriter salesman this doesn't really concern the state of the economy either but rather peoples tastes

If economic agents perfectly anticipate policy changes and if all prices including wages are completely flexible, which of the following will be true in the long run?

There will be no trade-off between inflation and unemployment.

If economic agents perfectly anticipate policy changes and if all prices, including wages, are completely flexible, which of the following will be true in the long run?

There will be no trade-off between inflation and unemployment.

Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply?

They have different lag times between implantation of a policy and its effects on aggregate demand

Which of the following is true about changes in tax rates, changes in the level of government expenditures, and change s in the money supply?

They have different lag times between implementation of a policy and its effects on aggregate demand.

Why do producers work harder when they see prices rise?

They see the opportunity to make more money, because the prices of the goods they sell have risen.

Which of the following is not a role of the Federal Reserve Bank?

To insure depository institutions

Which of the following represents an aim of automatic stabilizers?

To reduce consumer spending in a boom in order to avoid overheating the economy

On the Fed's balance sheet

Treasury securities appear as assets, and U.S. dollars appear as liabilities.

According to the Fisher equation, when we hold inflation constant, the real and nominal interest rates move one for one.

True

An increase in the price level will raise the demand for money and shift the demand curve for money outward.

True

Because changing the required reserve ratio can have drastic effects on the economy, the Fed rarely exercises this tool of monetary policy.

True

Checkable deposits are a liability on a bank's balance sheet.

True

Checkable deposits held in savings and loan institutions, mutual savings banks, and credit unions are part of the M1 definition of the money supply.

True

Contractionary monetary policy will cause prices and output to decrease in the short-run.

True

Demand-driven deflation is often referred to as bad deflation.

True

Fiscal and monetary policies are often useful in pulling an economy out of a recession.

True

Lowering the discount will increase the money supply.

True

Suppose the U.S. economy is experiencing a recession. Increasing the money supply will provoke an expansion in the short run.

True

The M2 money supply is larger than the M1 money supply.

True

The government can buy back Treasury bills and increase the supply of loanable funds when tax revenue exceeds government spending.

True

The implementation of fiscal policy might be delayed because of constituent-supported programs that are difficult to retract.

True

The primary role of the Fed is to control inflation through monetary policy set by the Federal Open Market Committee (FOMC).

True

The purchase of Treasury securities by the Fed will increase the money supply.

True

The use of monetary policy as a means to prevent the crowding out that might occur from expansionary policy is a short-run strategy.

True

According to the precautionary motive, people will choose to hold money instead of interest-bearing assets to protect their financial security.

True.

Stocks are assets on a mutual fund's balance sheet, while the fund itself is the liability.

True.

To protect financial security, people may choose to hold money instead of interest-bearing assets.

True.

Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run?

Unemployment

Which of the following are the most likely short-run effects of an increase in government expenditures?

Unemployment Rate= decrease Inflation Rate= increase Real Gross Domestic Product= increase

Which of the following represents an automatic stabilizer?

Unemployment insurance

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply?

Unemployment rate 5%. Inflation rate 10%.

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply?

Unemployment rate of 5% AND Inflation rate of 10%

When Country X's central bank engages in monetary policy actions tthat lead to a decrease in interest rates, in the international value of Country X's currency and Country X's exports and imports will most likely change in which of the following ways?

Value of Currency-decrease, Exports- Increase, Imports-Decrease

In an open economy, an increase in government budget defect tends to cause the international value of a country's currency and its trade defect to change in which of the following ways?

Value of Currency: Appreciates Trade Deficit: Becomes larger

If the real interest rates in the United States rise relative to rates in other countries, what will happen to the international value of the United States dollar and United States net exports?

Value of Dollar: Appreciate Net Exports: Decrease

According to new Keynesians, fiscal policy can have an effect on output because of which of the following factors?

Wages are sticky.

outflow

What happens when money leaves our economy ie: imports

Absolute advantage

When a country can make all together more of one good than another country can higher production

Comparative advantage

When a country can make more of a good while also giving up less

How does the tax system act as an automatic stabilizer?

When income rises, people move into higher tax brackets, reducing somewhat the amount of money available for consumption.

In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true?

When investment increases by $1, INCOME increases by a maximum of $5 ( to differentiate between other choices, this is the only solution containing four words that start with the letter I)

Change in Number of sellers (shifter of supply)

When more people are selling a good, the supply increases. When less people are selling it, the supply decreases

Underemployment

When people are working in positions that don't live up to their potential as a worker. Makes the economy look better than it is because these people are considered working even if it isn't to their potential

Change in expectations (shifter of supply)

When producers think that the price will increase in the future, supply will decrease due to the potential to make more with it later on. When they think price will decrease in the future, they are going increase the supply so that they can make the most money out of what they have now.

Change in tastes (shifter of demand)

When something is popular or in style at the moment, the demand for it increases. When it falls out of style, the demand decreases.

Quantity controls

When the government limits the amount of a certain product that can be sold. Has to be to the left of equilibrium. creates a wedge known as the market price that is a gap between the supply price and demand price

Price of related goods (shifter of supply)

When the price of a good increases,

Input prices (shifter of supply)

When the prices of inputs such as resources and labor (wages) increases, the supply decreases due to the increased cost.

Number of buyers (shifter of demand)

When there are more people that want to spend money on a certain good, the demand for it goes up. When there are less people, the demand goes down. This is mostly fueled by immigration

Technology (shifter of supply)

With new technology, producers are able to produce more products in a quicker and more efficient amount of time.

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will hcange in which of the following ways?

[IR]Decrease--[Q of $] Not Change

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

[Income]-Increase --- [Employment]-Decrease

In an economy in which all prices, including wages, are completely flexible, an increase in labor productivity will result in which of the following changes in output and real wages?

[output] increase --- [real wages] increase

An investor receives _____________ when a stock is sold for more than the purchase price.

a capital gain

According to the graph, the movement from D to D′ represents

a change in a factor other than the interest rate that increased the demand for money at every interest rate.

Stagflation is caused by:

a decrease in aggregate supply

Stagflation is most likely caused by:

a decrease in aggregate supply

Stagflation is most likely to be caused by

a decrease in aggregate supply

Which of the following will cause an increase in AD?

a decrease in income taxes

Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates?

a decrease in taxes and an open market purchase of government securities by the central bank

An increase in aggregate demand will cause which of the following?

a movement along a given short-run phillips curve (note: this is not a shift, just movement along the curve)

Lenders with relatively small amounts of money and the desire to invest in a diverse portfolio of stocks and bonds should invest in

a mutual fund.

An economic model is

a simplified representation of some aspect of the economy

Which of the following is NOT a function of fiat money?

a source of intrinsic value

The money demanded for the purpose of purchasing goods and services is known as...

a transactions demand

Which of the following best states the thesis of the law of comparative advantage? a) Differences in relative costs of production are the key to determining patterns of trade. b) Differences in absolute costs of production determine which goods should be traded between nations. c) Tariffs and quotas are beneficial in increasing international competitiveness. d) Nations should not specialize in the production of goods and services. e) Two nations will not trade if one is more efficient than the other in the production of all goods.

a) Differences in relative costs of production are the key to determining patterns of trade.

The following chart shows the total utility than Juan receives from consuming various amounts of chocolate candy bars each day. Number of Candy Bars Consumed per Day Total Utility 0 0 1 40 2 70 3 90 4 100 5 80 Which of the following statements about Juan's marginal utility is correct? a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar. b) His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar. c) His marginal utility increases at a constant rate. d) He first experiences diminishing marginal utility with the consumption of the fifth candy bar. e) His greatest marginal utility comes from his consumption of the fourth candy bar.

a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.

Which of the following statements is true for a monopolist at the profit-maximizing output level? a) Price exceeds marginal revenue. b) Marginal cost exceeds price. c) Demand is price inelastic. d) Price equals marginal cost, which equals average total cost. e) The demand curve intersects the supply curve.

a) Price exceeds marginal revenue.

If the price for a product produced in a competitive market increases, which of the following is most likely to occur in the labor market for workers who produce that product? a) The demand for labor and the number of workers hired both increase. b) The supply of labor and the number of workers hired both increase. c) The demand for labor and the number of workers hired both decrease. d) The supply of labor and the number of workers hired both decrease. e) There is a movement along the demand for labor curve, and firms hire more workers.

a) The demand for labor and the number of workers hired both increase.

If it were possibly to increase the output of military goods and simultaneously to increase the output of the private sector of an economy, which of the following statements about the economy and its current position relative to its production possibilities curve would be true? a) The economy is inefficient and inside the curve. b) The economy is inefficient and on the curve. c) The economy is efficient and on the curve. d) The economy is efficient and inside the curve. e) The economy is efficient and outside the curve.

a) The economy is inefficient and inside the curve.

In a perfectly competitive market, an individual farmer intending to increase her revenue decides to increase the price of her crop by 20 percent. As a result her total revenue will a) decrease b) stay the same c) increase by less than 20 percent d) increase by 20 percent e) increase by more than 20 percent

a) decrease

A natural monopoly occurs in an industry if a) economies of scale allow at most one firm of efficient size to exist in that market b) a single firm has control over a scarce and essential resource c) a single firm has the technology to produce the product sold in that market e) above-normal profits persist in the industry

a) economies of scale allow at most one firm of efficient size to exist in that market

Half of the inhabitants of an island oppose building a new bridge to the mainland since they say it will destroy the island's quaint atmosphere. The economic concept that is most relevant to the decision of whether or not to build the bridge is a) externalities b) natural monopoly c) economic rent d) imperfect competition e) perfect competition

a) externalities

The condition for allocative efficiency is violated when a) firms are price makers (price searchers) b) short-run profits exist in a competitive industry c) price equals average total cost d) the market demand curve is inelastic in a competitive industry e) the market demand curve is elastic in a competitive industry

a) firms are price makers (price searchers)

Private supply of public goods is most likely to result in a) less than the efficient level of output, due to the free-rider problem b) less than the efficient level of output, due to the problem of insufficient competition c) more than the efficient level of output, due to lower costs of private firms d) more than the efficient level of output, due to the existence of externalities e) an overuse of these goods

a) less than the efficient level of output, due to the free-rider problem

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner b) marginal benefit from cleaner water is maximized c) marginal benefit from cleaner water is zero d) total benefit from cleaner water is equal to the total cost of making the water cleaner e) total benefit from cleaner water is maximized

a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner

Assume that an electric power company owns two plants and that, on a particular day, 10,000 kilowatts of electricity are demanded by the public. In order to minimize the total cost of providing the 10,000 kilowatts, the company should allocate production so that a) marginal costs are the same for both plants b) average total costs are the same for both plants c) total variable costs are the same for both plants d) the sum of total variable cost and total fixed cost is the same for both plants e) only the plant with the lower average cost is used to produce the 10,000 kilowatts of electricity

a) marginal costs are the same for both plants

(Look at Graph in Packet for #46) The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing a) more future consumption in exchange for less current consumption b) more current capital goods in exchange for less future consumption c) more future and current consumption d) less future consumption in exchange for more current consumption e) less current capital goods in exchange for greater future consumption

a) more future consumption in exchange for less current consumption

Monopolistically competitive firms at a higher average cost than do perfectly competitive firms a) produce a lower level of output at a higher average cost than do perfectly competitive firms b) use production processes that are more capital intensive than do perfectly competitive firms c) face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue d) produce at that level of output where price equals marginal cost e) realize diseconomies of scale

a) produce a lower level of output at a higher average cost than do perfectly competitive firms

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is a) producing too little output b) producing where its marginal revenue is less than its marginal cost c) using too much of the variable input d) charging too high a price for its output e) not earning any economic profits

a) producing too little output

The demand curve for cars is downward sloping because an increase in the price of cars leads to a) the increased use of other modes of transportation b) a fall in the expected future price of cars c) a decrease in the number of cars available for purchased d) a rise in the prices of gasoline and other oil-based products e) a change in consumers' tastes in cars

a) the increased use of other modes of transportation

A country can consume beyond its present production possibilities curve when it a) trades with other countries, thus taking advantage of different opportunity costs b) reduces unemployment, thus increasing output c) experiences decreasing opportunity costs d) faces an upward-sloping production possibilities curve e) faces a downward-sloping production possibilities curve

a) trades with other countries, thus taking advantage of different opportunity costs

8. Dissaving occurs when disposable income is a. $620 b. $640 c. $660 d. $700 e. $1,000

a. $620

45. Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT a. Borrowers b. workers with fixed incomes c. savers holding non-interest-bearing money d. taxpayers shifted into higher tax brackets e. people whose incomes are not adjusted for inflation

a. Borrowers

24. Which of the following actions by the Federal Reserve of the United States increases the money supply? a. Buying government bonds on the open market b. Selling government bonds on the open market c. Increasing the reserve requirement d. Increasing the discount rate e. Increasing the federal funds rate

a. Buying government bonds on the open market

5. A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run? Nominal Interest Rate Aggregate Demand a. Increase Decrease b. Increase Increase c. Increase Not change d. Decrease Decrease e. Decrease Increase

a. Increase Decrease

10. An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways? Demand for Money Nominal Interest Rates a. Increase Increase b. Increase Decrease c. Increase Indeterminate d. Decrease Increase e. Decrease Decrease

a. Increase Increase

29. The consumer price index (CPI) is criticized for a. overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change b. overstating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change c. understating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change d. understating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change e. overstatingthetrueburdenofinflation because it reflects the prices of both intermediate goods and final goods

a. overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

46. If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to a. sell securities on the open market b. increase bond prices c. increase income taxes d. decrease the discount rate e. decrease the required reserve ratio

a. sell securities on the open market

A price floor is set ________ equilibrium. If it is set _________ equilibrium it is non-binding because the price will raise at equilibirum.

above; below

The nation of Ectenia has long banned the export of its highly prized puka shells. A newly elected president, however, removes the export ban. This change in policy will cause the nation's currency to ________, making the goods Ectenia imports ________ expensive.

appreciate, less

If a nation's currency doubles in value on foreign exchange markets, the currency is said to ________, reflecting a change in the ________ exchange rate.

appreciate, nominal

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

are less than actual reserves.

Inflation occurs when there is a sustained increase in-

average price levels

Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation? a) A monopolist produces too little of the good, producing an output that minimizes the average cost of production. b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production. c) A monopolist is more likely to pollute the environment than are firms in a competitive industry. d) A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves. e) A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.

b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.

Suppose that the consumption of a certain product results in benefits to others besides the consumers of the product. Which of the following statements is most likely to be true? a) The demand for the product is price inelastic. b) A perfectly competitive industry will not produce the optimal quantity of the product. c) A perfectly competitive industry will not produce the product. d) Optimally requires that consumers of this product will be taxed. e) Producers of this product earn an economic profit.

b) A perfectly competitive industry will not produce the optimal quantity of the product.

An increase in which of the following will most likely result in a long-run surplus of a product? a) The number of supplies of the product b) A price that is set by law above the equilibrium price c) The demand for the product d) The costs of resources used to produce the product e) The future expected price of the product

b) A price that is et by law above the equilibrium price

If a normal good is produced in a competitive market, which of the following combinations of events could cause the price of the good to increase and the quantity to decrease? a) An increase in the average income of consumers and an increase in the number of producing firms b) An increase in the average income of consumers and an increase in the price of a variable input c) An increase in the price of a substitute good an an increase in the number of producing firms d) A decrease in the number of consumers and a decrease in the price of a variable input e) A decrease in the average income of consumers and an increase in the number of producing firms

b) An increase in the average income of consumers and an increase in the price of a variable input

Problems faced by all economic systems include which of the following? I. How to allocate scare resources among unlimited wants II. How to decentralize markets III. How to decide what to produce, how to produce, and for whom to produce IV. How to set government production quotas a) I only b) I and III only c) II and III only d) I, II, and III only e) I, II, III, and IV

b) I and III only

(Look at Graph in Packet for #40) Which of the follow statements about the firm whose cost and revenue curves are shown above is correct? a) Its profit-maximizing price is $5. b) Its profit-maximizing output level is 200 units. c) Its maximum profit is $4,000. d) If it produces 250 units, it will earn no economic profits. e) At the profit-maximizing level of output, its total cost is $1,000.

b) Its profit-maximizing output level is 200 units.

If a perfectly competitive industry were monopolized without any changes in cost condition, the price and quantity produced would change in which of the following ways? a) Price: increase; quantity: increase b) Price: increase; quantity: decrease c) Price: increase; quantity: may increase or decrease d) Price: decrease; quantity: increase e) Price: decrease; quantity: decrease

b) Price: increase; quantity: decrease

Which of the following statements is true for a perfectly competitive firm but NOT true for a monopoly? a) The firm's price is equal to its average revenue. b) The firm cannot affect the market price for its good. c) It is difficult for other firms to enter the industry. d) The demand for the firm's product is unit elastic. e) The firm must lower its price in order to sell more of its product.

b) The firm cannot affect the market price for its good.

(Look at Graph in Packet #3 for #26) Which of the following best explains the shape of the production possibilities curve for the two commodity economy shown above? a) The opportunity cost of producing an additional unit of each commodity expands. b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands. c) The opportunity cost of producing an additional unit of each commodity increases as production of the commodity expands. d) The quantity demanded of each commodity increases. e) The quantity demanded for each commodity increases as the production of the commodity expands.

b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands.

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct? a) The total revenue from selling 101 units is the same as the total revenue from selling 100 units. b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units. c) The total cost of producing 101 units is $2 greater than the total cost of producing 100 units. d) To sell 101 units, the firm must reduce its price below $20. e) To sell 101 units, the firm must raise its price above $20.

b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.

The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing. Food - Gamma: 10; Omega: 5 Clothing - Gamma: 9; Omega: 3 Which of the following statements is true according to the chart above? a) Trade should take place, with Gamma specializing in clothing production and Omega specializing in food production. b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production. c) Each country should devote half of its resources to food production and half to clothing production and not trade. d) Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from trade with Gamma. e) Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit from trade with Omega.

b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.

(Look at Graph in Packet for #18-19) In a competitive equilibrium, consumer surplus is the area of a) UVZ b) WYZ c) RVUT d) XVZY e) 0YZS

b) WYZ

An improvement in production technology for a certain good leads to a) an increase in demand for the good b) an increase in the supply of the good c) an increase in the price of the good d) a shortage of the good e) a surplus of the good

b) an increase in the supply of the good

The supply curve for automobiles will shift to the left in response to a) an increase in the efficiency of robot technology b) an increase in wages in the automobile industry c) a decrease in the number of consumers purchasing automobiles d) a decrease in the interest rates for automobile loans e) a decrease in consumers' income

b) an increase in wages in the automobile industry

The government is considering imposing a 3 percent tax on either good A or B. In order to generate the largest revenue, the tax should be imposed on the good for which a) demand is perfectly elastic b) demand is perfectly inelastic c) demand is unit elastic d) supply is perfectly elastic e) supply is unit elastic

b) demand is perfectly inelastic

If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm should a) not hire the worker b) hire the worker c) hire the worker only if another worker leaves d) hire the worker only if the worker can rise the firm's productivity e) reduce the number of workers employed by the firm

b) hire the worker

A profit-maximizing firm will hire a) labor until its wage rate equals its average revenue product b) labor until its wage rate equals its marginal revenue product c) labor until its wage rate equals the interest rate d) capital until the interest rate equals the wage rate e) capital until the interest rate exceeds the wage rate

b) labor until its wage rate equals its marginal revenue product

The basic economic problem of all countries is the existence of a) tax increases and budget deficits b) limited resources and unlimited wants c) unemployment and inflation d) government and private industry e) unions and monopoly firms

b) limited resources and unlimited wants

In the United States, the federal government redistributes income primarily by a) setting up planning commissions to set wage rates b) taxing different income levels at different rates c) guaranteeing every person a minimum income through minimum-wage laws d) providing the same goods and services to all citizens e) relocating and retraining structurally unemployed people

b) taxing different income levels at different rates

In a market economy, public goods such as community police protection are unlikely to be provided in sufficient quantity by the private sector because a) private firms are less efficient at producing public goods than is the government b) the use of public goods cannot be withheld from those who do not pay for them c) consumers lack information about the benefits of public goods d) consumers do not value public goods highly enough for firms to produce them profitably e) public goods are inherently too important to be left to private firms to produce

b) the use of public goods cannot be withheld from those who do not pay for them

44. Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by a. $44 b. $56 c. $70 d. $80 e. $100

b. $56

19. Which of the following will cause an increase in aggregate demand? a. An increase in the price level b. A decrease in income taxes c. An increase in the demand for money d. A decrease in the supply of money e. A decrease in government transfer payments

b. A decrease in income taxes

32. Frictional unemployment occurs when which of the following happens? a. A worker is replaced by robots on factory assembly lines. b. A worker voluntarily quits a job to search for a better one. c. A worker is laid off because of a downturn in economic activity. d. A worker undergoes on-the-job training. e. A worker switches from working full-time to part-time.

b. A worker voluntarily quits a job to search for a better one.

42. An increase in the price level will most likely cause which of the following? a. A leftward shift of the aggregate demand curve b. An increase in the demand for money c. An increase in the real interest rate d. A decrease in the nominal interest rate e. An increase in the supply of money

b. An increase in the demand for money

39. According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation? Short Run Long Run a. R to N M to N b. R to M R to N c. R to Q Q to N d. R to M R to Q e. R to N N to Q

b. R to M R to N

2. Inflation occurs when there is a sustained increase in which of the following? a. Real gross domestic product b. The average price level c. The price of any commodity d. Labor productivity e. Theunemployment rate

b. The average price level

47. Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true? a. Country A has an absolute advantage in the production of wheat. b. The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn. c. The cost of producing a bushel of wheat in Country A is greater than 2.5 bushels of corn. d. Country A is producing inside its current production possibilities curve. e. Country A needs to use more resources to produce wheat than to produce corn.

b. The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn.

38. Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates? a. Country B's government gives more investment tax credits. b. The labor force of Country A is becoming more skilled than the labor force of Country B. c. The natural rate of unemployment is higher in Country A. d. Country A's central bank is less effective at controlling the inflation rate. e. Although the populations of Countries A and B are the same, Country A has twice as many people who are retired

b. The labor force of Country A is becoming more skilled than the labor force of Country B.

In the measurement of gross domestic product, investment includes spending by:

business on capital goods and changes in inventories

The Federal Reserve decreases the federal funds rate by:

buying government bonds on the open market

Which of the following actions by the federal reserve of the US will increase the money supply?

buying government bonds on the open market

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately a) $0.20 b) $3.00 c) $5.00 d) $15.00 e) $45.00

c) $5.00

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? a) $2 b) $5 c) $7 d) $9 e) $12

c) $7

Quantity Produced: 0, 1, 2, 3, 4, 5 Total Cost: $5, 17, 28, 41, 61, 91 Barney's Bait Company can sell all the lures it produces at the market price of $14. On the basis of the cost information in the table above, how many lures should the bait company make? a) 1 b) 2 c) 3 d) 4 e) 5

c) 3

Number of Workers: 2, 3, 4, 5 Total Output: 12, 22, 28, 32 Which of the following is the marginal product of the fourth worker? a) 4 b) 5 c) 6 d) 28 e) 112

c) 6

Which of the following is true in the elastic range of a firm's demand curve? a) The firm should expand output to increase economic profits. b) An increase in price will also lead to an increase in total cost. c) A decrease in price will likely lead to an increase in total revenue. d) Marginal revenue is negative. e) The firm is maximizing total revenue.

c) A decrease in price will likely lead to an increase in total revenue.

In a perfectly competitive labor market for nurses, all of the following statements are true EXCEPT: a) The imposition of an effective minimum wage will result in unemployment. b) An increase in the marginal product of nurses will increase the demand for nurses and increase wages. c) An increase in the supply of nurses will create unemployment and leave wages unchanged. d) An increase in the demand for health care will increase the demand for nurses and increase wages. e) Revoking work permits for foreign nurses will increase wages of domestic nurses.

c) An increase in the supply of nurses will create unemployment and leave wages unchanged.

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes? Industry's Demand Curve Firm's Demand Curve a) Horizontal Downward sloping b) Horizontal Horizontal c) Downward sloping Horizontal d) Downward sloping downward sloping e) Vertical Hoizontal

c) Downward sloping; Horizontal

If the supply of a factor or production is fixed, which of the following will be true of its price? a) Supply is irrelevant to the determination of factor price. b) A positive factor price cannot be justified on economic grounds. c) Factor price will be determined by the demand for the fixed amount of the factor. d) Factor price will not be determined by supply and demand analysis. e) Factor price will be zero, since no payment is necessary to secure the services of the factor.

c) Factor price will be determined by the demand for the fixed amount of the factor.

Which of the following situations best illustrates the law of demand? a) As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased. b) Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine. c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased. d) The increase in the price of quality health foods has increased the revenues of firms producing these goods. e) As the demand for computers has increased, the number of workers in the computer industry has increased.

c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased.

Which of the following best describes a perfectly competitive market? a) Many small firms producing differentiated products and facing significant barriers to entry b) Many small firms producing homogenous product and facing significant barriers to entry c) Many small firms producing a homogenous product and facing no significant barriers to entry d) A single large firm producing a unique product and facing significant barriers to entry e) A few large firms producing a differentiated product and facing no significant barriers to entry

c) Many small firms producing a homogenous product and facing no significant barriers to entry

In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have a) a higher price and higher output b) a higher price and lower output c) a lower price and lower output d) a lower price and lower output e) the same price and lower output

c) a lower price and lower output

(Look at Graph on #6-7 in Packet) The vertical distance CF represents the a) total cost of producing Q1 units of output b) average total cost of producing Q1 units of output c) average fixed cost of producing Q1 units of output d) average variable cost of producing Q1 units of output e) amount of the firm's loss resulting from producing Q1 units of output

c) average fixed cost of producing Q1 units of output

If a price floor is set at X, the quantity demanded will a) increase from 0R to 0S b) increase from 0R to 0T c) decrease from 0S to 0R d) decrease from 0T to 0R e) not change

c) decrease from 0S to 0R

In a perfectly competitve industry, the market price of product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should a) decrease its selling price b) increase its selling price c) decrease output but keep producing d) shut down e) leave both price and output unchanged

c) decrease output but keep producing

(Look at Graph on Packet for #22) The relationship in the graph above best illustrates the economic concept of a) opportunity cost b) diminishing marginal utility in consumption c) diminishing marginal returns in production d) production possibilities e) comparative advantage

c) diminishing marginal returns in production

Assume that both input and product markets are competitive. If the product price rises, in the short run firms will increase production by increasing a) the stock of fixed capital until marginal revenue equals the product price b) the stock of fixed capital until the average product of capital equals the price of capital c) labor input until the marginal revenue product of labor equals the wage rate d) labor input until the marginal product of labor equals the wage rate e) labor input until the ratio of product price to the marginal product of labor equals the wage rate

c) labor input until the marginal revenue product of labor equals the wage rate

In the short run, a decrease in production costs of a product will shift a) both the demand curve and the supply curve to the right b) the demand curve to the left and the supply curve to the right c) only the supply curve to the right d) only the supply curve to the left e) only the demand curve to the left

c) only the supply curve to the right

Marginal revenue is the change in revenue that results from a one-unit increase in the a) variable input b) variable input price c) output level d) output price e) fixed cost

c) output level

Whenever the production of a good creates negative externalities, an unregulated market will result in a) too little of the good being produced b) an optimal amount of the good being produced c) society's marginal cost being higher than the firm's marginal cost d) the firm's marginal cost being higher than society's marginal cost e) the firm's marginal cost being equal to society's marginal cost

c) society's marginal cost being higher than the firm's marginal cost

The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because a) advertising costs make monopolistic competition b) the firms in the industry do not operate at the minimum point on their long-run average cost curves c) there are no restrictions on entering or exiting from the industry d) the firms in the industry are unable to engage in product differentiation e) there are close substitutes for each firm's product

c) there are no restrictions on entering or exiting from the industry

11. Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? a. An open-market purchase of government securities by the central bank and a decrease in the federal funds rate b. An open-market sale of government securities by the central bank and an increase in the federal funds rate c. A decrease in taxes and an open-market purchase of government securities by the central bank d. An increase in government spending and an open-market sale of government securities by the central bank e. An increase in taxes and an increase in the federal funds rate

c. A decrease in taxes and an open-market purchase of government securities by the central bank

25. If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur? a. Equilibrium price will increase. b. Equilibrium price will decrease. c. Equilibrium quantity will increase. d. Equilibrium quantity will decrease. e. Equilibrium quantity will remain the same.

c. Equilibrium quantity will increase.

52. Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand? Net Exports Aggregate Demand a. Decrease Decrease b. Decrease No change c. Increase Increase d. Increase Decrease e. Increase No change

c. Increase Increase

3. Which of the following is LEAST likely to promote economic growth? a. Investment in tools and machines b. Investment in training of labor c. Increase in consumption of nondurable goods d. Tax credit for technology improvement e. Increaseinthelaborforceparticipation rate

c. Increase in consumption of nondurable goods

6. If the economy is in a severe recession, which of the following policy actions is most appropriate? a. Keeping the money supply constant and reducing budget deficits b. Decreasing government spending and taxes by the same amount c. Increasing both the money supply and government spending d. Increasing both the federal funds rate and taxes e. Decreasing the money supply and increasing taxes

c. Increasing both the money supply and government spending

56. Which of the following is true of the Phillips curve? a. It is vertical in the short run, but is upward sloping in the long run. b. It is upward sloping in the short run, but is downward sloping in the long run. c. It is downward sloping in the short run, but is vertical in the long run. d. It shows trade-offs between unemployment and inflation in the long run but not in the short run. e. It is upward sloping both in the short run and in the long run if inflation is anticipated correctly.

c. It is downward sloping in the short run, but is vertical in the long run.

57. The diagram above shows three production possibilities curves (PPCs). If the current PPC is PPC1, which of the following changes indicates a recession? a. Movement from point X to point Y b. Movement from point Y to point X c. Movement from point Y to point Z d. Shift from PPC1 to PPC0 e. Movement from point Z to point X

c. Movement from point Y to point Z

12. In the circular flow diagram of a market economy, which of the following supplies the factors of production? a. The business sector b. The government c. The household sector d. Financial sector e. Theforeign sector

c. The household sector

49. The natural rate of unemployment can be defined as the a. unemployment rate consistent with accelerating inflation b. unemployment rate of the least-skilled workers c. economy's long-run equilibrium rate of unemployment d. labor force participation rate plus the unemployment rate e. labor force participation rate minus the unemployment rate

c. economy's long-run equilibrium rate of unemployment

34. As a component of aggregate demand, investment refers to the a. purchase of raw land for later resale b. purchase of stocks and bonds c. purchase of new equipment and additional inventories d. difference between people's income and spending e. dividends paid out to shareholders

c. purchase of new equipment and additional inventories

41. In the short run, government deficit spending will most likely a. raise the unemployment rate b. lower the inflation rate c. raise nominal interest rates d. lower private savings e. raise net exports

c. raise nominal interest rates

13. If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of a. the unemployment rate b. real output c. the price level d. nominal interest rates e. real interest rates

c. the price level

Double shifts

can only occur from two UNRELATED EVENTS. One event cannot shift supply and demand on its own

The profits received from selling stock for more than the purchase price are called

capital gains.

An increase in which of the following will most likely increase productivity?

capital stock

The table below represents points on an economy's current production possibilities curve. Good X Good Y 1,000 0 990 100 980 200 970 300 The opportunity cost of increasing the production of good Y from 0 to 200 is a) 1,000 units of X b) 980 units of X c) 200 units of X d) 20 units of X e) 5 units of X

d) 20 units of X

Which of the following would necessarily cause a fall in the price of a product? a) An increase in population and a decrease in the price of an input b) An increase in population and a decrease in the number of firms producing the product c) An increase in average income and an improvement in production technology d) A decrease in the price of a substitute product and an improvement in production technology e) A decrease in the price of a substitute product and an increase in the price of an output

d) A decrease in the price of a substitute product and an improvement in production technology

If bologna is an inferior good, which of the following must be true? a) The demand curve for bologna is vertical. b) The demand curve for bologna is horizontal. c) An increase in the price of bologna will decrease the supply of bologna. d) An increase in consumer income will decrease the demand for bologna. e) A decrease in consumer income will decrease the supply of bologna.

d) An increase in consumer income will decrease the demand for bologna.

Which of the following statements is true of perfectly competitive firms in long-run equilibrium? a) Firm revenues will decrease if production is increased. b) Total firm revenues are at a maximum. c) Average fixed cost equals marginal cost. d) Average total cost is at a minimum. e) Average variable cost is greater than marginal cost.

d) Average total cost is at a minimum.

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the good reduces consumers' purchasing power. III. An increase in the price of the good increase consumers' utility from consuming that good. a) I only b) II only c) III only d) I and II only e) I and III only

d) I and II only

The market equilibrium price of home beating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for home heating oil? I. Quantity supplied in increase. II. Quantity demanded will increase. III. Quantity supplied will decrease. IV. Quantity demanded will decrease. a) II only b) I and II only c) I and IV only d) II and III only e) III and IV only

d) II and III only

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium? a) TUx = Tuy b) Mux = MUy c)Tux/Px = TUy/Py d) MUx/Px = MUy/Py (MUx)(Px) + (MUy)(Py) = 1

d) MUx/Px = MUy/Py

Suppose that an effective minimum wage is imposed in a certain labor market above the equilibrium wage. If labor supply in that market subsequently increases, which of the following will occur? a) Unemployment in that market will increase b) Quantity of labor supplied will decrease. c) Quantity of labor demanded will increase. d) Market demand will increase. e) The market wage will increase.

d) Market demand will increase.

Which of the following is the best example of a negative externality? a) An increase in the price of oil due to the imposition of environmental regulations b) An increase in the price of oil due to action taken by the Organization of Petroleum Exporting Countries (OPEC) c) A decline in oil stock prices as a result of bad management d) Oil leakages from drilling platforms in the Gulf of Mexico e) Declining restrictions on the importation of foreign-made cars

d) Oil leakages from drilling platforms in the Gulf of Mexico

Assume that products X and Y are substitutes. If the cost of producing X decreases and the price of Y increases, which of the following will occur to the equilibrium price and quantity of X? a) Price of X: Increase; Quantity of X: Increase b) Price of X: Increase; Quantity of X: Decrease c) Price of X: Increase; Quantity of X: Increase or decrease d) Price of X: Increase or decrease; Quantity of X: Increase e) Price of X: Decrease; Quantity of X: Decrease

d) Price of X: Increase or decrease; Quantity of X: Increase

Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel and act as a profit-maximizing monopoly? a) Price: Decrease; Quantity: Decrease b) Price: Decrease; Quantity: Increase c) Price: Increase; Quantity: Increase d) Price: Increase; Quantity: Decrease e) Price: Increase; Quantity: No change

d) Price: Increase; Quantity: Decrease

Reducing the tariff on the Canadian beer sold in the United States will most likely have which of the following effects on the market for beer produced and sold in the United States? a) The quantity of United States beer purchased will increase. b) Total expenditure of United States beer will increase. c) The supply of United States beer will increase. d) The price of the United States beer will decrease. e) More workers will be employed in the production of United States beer.

d) The price of the United States beer will decrease.

Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr. Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs? a) The wages of farm workers and movie theater employees increase. b) A technological improvement results in less expensive and more efficient harvesting of corn. c) The introduction of new fat-free potato chips provides new competition in the snack-food market. d) The release of three summer movies sets records for movie attendance. e) New government regulations force movie theaters to hire more security guards at each theater.

d) The release of three summer movies sets records for movie attendance.

Which of the following is true if a perfectly competitive industry is earning zero economic profits in the long run? a) The level of investment in long-run equilibrium is greater than the efficient level. b) Relatively few firms are able to survive the competitive pressures in the long run. c) Some firms will be forced to transfer their resources to more lucrative uses. d) The resources invested in this industry are earning at least as high a return as the would in any alternative use. e) Firms will exit until economic profits become positive.

d) The resources invested in this industry are earning at least as high a return as the would in any alternative use.

A leftward shift in the supply curve of corn would result from a) decrease in the price of corn b) a decrease in the price of farm machinery c) an increase in the demand for corn bread d) an increase in the labor costs of producing corn e) an increase in consumers' incomes

d) an increase in the labor costs of producing corn

An effective price floor introduced in the market for rice will result in a) a decrease in the price of rice and an increase in the quantity of rice sold b) a decrease in the price of rice and a decrease in the quantity of rice sold c) a decrease in the price of rice and an excess demand for rice d) an increase in the price of rice and an excess supply of rice e) an increase in the price of rice and an excess demand for rice

d) an increase in the price of rice and an excess supply of rice

Monopolies are inefficient compared to perfectly competitive firms because monopolies a) produce output with average total cost exceeding average revenue b) produce more output than is socially desirable c) charge a price less than marginal revenue d) charge a price greater than marginal cost e) charge a price less than average total cost

d) charge a price greater than marginal cost

A firm doubles all of its inputs and finds that it has more than doubled its output. This situation is an example of a) increasing marginal returns b) diminishing marginal returns c) constant returns to scale d) increasing returns to scale e) decreasing returns to scale

d) increasing returns to scale

In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will a) raise its price b) increase its output c) decrease its output slightly but increase its profit margin d) lose more by continuing to produce than by shutting down e) lose less by continuing to produce than by shutting down

d) lose more by continuing to produce than by shutting down

A city council is deciding what price to set for a trip on the city's commuter train line. if the council wants to maximize profits, it will set a price so that a) price equals marginal cost b) price equals average cost c) price equals marginal revenue d) marginal revenue equals marginal cost e) marginal revenue equals average total cost

d) marginal revenue equals marginal cost

All of the following are included in computing the opportunity cost of attending college EXCEPT a) interest paid on student loans b) wages the student gave up to attend college c) money spent on college tuition d) money spent on clothing expenses e) money spent on books and supplies

d) money spent on clothing expenses

Interdependence among firms is a characteristic primarily associated with a) labor markets b) perfect competition c) monopsony d) oligopoly e) monopoly

d) oligopoly

A factor of production will NOT earn economic rent when its supply is a) elastic b) inelastic c) unit elastic d) perfectly elastic e) perfectly inelastic

d) perfectly elastic

53. If the required reserve ratio is 10 percent, actualreserves are $10 million, and currency in circulation is equal to $20 million, M1 will at most be equal to a. $20 million b. $30 million c. $90 million d. $120 million e. $150 million

d. $120 million

31. If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of a. $40.00 b. $100.00 c. $133.33 d. $400.00 e. $500.00

d. $400.00

9. The marginal propensity to save for this economy is a. 4.0 b. 1.0 c. 0.8 d. 0.2 e. 0

d. 0.2

20. If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full-employment level? a. Doing nothing, since there are automatic stabilizers b. The sale of bonds by the Federal Reserve c. An increase in the income tax d. An increase in government spending e. An increase in the discount rate

d. An increase in government spending

22. Which of the following will most likely cause an increase in real output in the long run? a. A decrease in the labor force participation rate b. An increase in the velocity of money c. An open-market sale of government bonds by the central bank d. An increase in immigration from abroad e. An increase in the price level

d. An increase in immigration from abroad

35. If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run? Nominal Interest Rate Employment a. Increase Increase b. Increase Decrease c. Decrease Decrease d. Decrease Indeterminate e. Indeterminate Decrease

d. Decrease Indeterminate

14. An increase in which of the following would most likely result in an increase in aggregate supply? a. The price level b. Aggregate demand c. Unemployment compensation d. Labor-force participation rate e. The minimum wage

d. Labor-force participation rate

58. If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways? Real Output Price Level a. Increase Increase b. Increase Decrease c. Increase Not change d. Not change Increase e. Not change Not change

d. Not change Increase

23. Potential gross domestic product will decrease under which of the following conditions? a. The growth rate of the population increases more rapidly than the growth rate of gross domestic product. b. Nominal gross domestic product increases more than real gross domestic product. c. The natural rate of unemployment decreases. d. The country's annual depreciation is greater than its annual gross investment. e. The monetary authorities adopt an easy monetary policy.

d. The country's annual depreciation is greater than its annual gross investment.

30. A rightward shift of the short-run Phillips curve is most likely due to a. an increase in aggregate demand b. a decrease in aggregate demand c. a decrease in the expected rate of inflation d. an increase in the expected rate of inflation e. an increase in aggregate supply

d. an increase in the expected rate of inflation

4. An increase in spending in an economy will cause a multiplied increase in gross domestic product because a. government spending is greater than zero b. investment is greater than zero c. investment increases as income decreases d. consumption increases as income increases e. taxes increase as income increases

d. consumption increases as income increases

60. Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will a. increase by $10,000 b. increase by $50,000 c. decrease by $10,000 d. decrease by $50,000 e. not change

d. decrease by $50,000

The amount of money that the public wants to hold in cash will

decrease if the interest rates increase

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

decrease nominal interest rate, indeterminate employment

If the economy was in a severe recession, the most expansionary fiscal policy would be to:

decrease personal income taxes and increase government spending by EQUAL amounts

Supply-side economists hold the belief that decreasing the tax rate can

decrease prices and increase output.

If the reserve requirement is 25 percent and banks hold no excess reserves, an open market sale of $400,000 of government securities by the Federal Reserve will:

decrease the money supply by up to $1.6 million

If the government wants to contract aggregate demand, it can ________ government purchases or ________ taxes.

decrease, increase

When equilibrium price is ambiguous and equilibrium quantity decreases, a(n) __________ in demand and a(n) __________ in supply is occurring

decrease; decrease

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.

decrease; increase

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

decreased by $50 billion.

Hyperinflations occur when the government runs a large budget ________, which the central bank finances with a substantial monetary ________.

deficit, expansion

The theory of purchasing-power parity says that higher inflation in a nation causes the nation's currency to ________, leaving the ________ exchange rate unchanged.

depreciate, real

In which of the following cases is the government's actions appropriate for reducing inefficiency? a) Taxation of the output of chocolate factory that emits an aroma that residents of the city enjoy b) Regulation that reduces the output of a monopoly c) A lump-sum tax on a monopolist d) A subsidy for the consumption of a good produced by a plant that emits a pollutant as a by-product e) A toll on a congested bridge

e) A toll on a congested bridge

Which of the following best explains why it is difficult to maintain lasting collusive agreements? a) There is an unavoidable conflict in that a collusive agreement can increase the profits of some, but not all firms in the industry. b) There is little potential for gain from collusion unless there is a large number of consumers in the market. c) Each firm in the industry views it self as facing a vertical demand curve, even though the market demand curve is downward sloping. d) The firms in the industry have a common incentive to increase output to a more competitive level. e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.

e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.

In which of the following ways does the united states government currently intervene in the working of the market economy? I. It produces certain goods and services. II. It regulates the private sector to achieve a more efficient allocation of resources. III. It redistributes income through taxation and public expenditure. a) I only b) II only c) III only d) II and III only e) I, II, and III

e) I, II, and III

Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm's short-run costs? a) MC: Increase; ATC: Increase; AVC: Increase b) MC: Increase; ATC: Increase; AVC: No effect c) MC: No effect; ATC: No effect; AVC: No effect d) MC: No effect; ATC: Increase; AVC: Increase e) MC: No effect; ATC: Increase; AVC: No effect

e) MC: No effect; ATC: Increase; AVC: No effect

(Look at Graph in Packet for #35) The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon? a) A shortage of 900 million gallons b) A shortage of 200 million gallons c) A shortage of 100 million gallons d) A surplus of 100 million gallons e) Neither a surplus nor a shortage

e) Neither a surplus nor a shortage

(Look at Graph in Packet #3 for #17) The diagram above depicts cost and revenue curves for a firm. What are the firm's profit-maximizing output and price? a) Output: 0S; Price: 0D b) Output: 0R; Price: 0E c) Output: 0Q; Price: 0F d) Output: 0Q; Price: 0B e) Output 0P; Price 0G

e) Output 0P; Price 0G

(Look at Graph in Packet #3 for #48) The figure above shows cost and revenue curves for a public regulated power company and three possible prices for its output. Which of the following statements about those prices is most accurate? a) If P1 were approved, regulation would not be needed and the company would have every incentive to lower rates to P2. b) P1 is inefficient; it is better to have several utilities serve the area than to approve P1. c) P2 is ideal; it gives stockholders the maximum rate of return and protects consumers from exploitation. d) P3 would maximize consumer welfare; greater electric use at this low rate would guarantee stockholders a fair rate of return. e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.

e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur? a) Short-run price: increase; short-run industry output: increase; movement of firms: enter b) Short-run price: increase; short-run industry output: decrease; movement of firms: exit c) Short-run price: decrease; short-run industry output: increase; movement of firms: exit d) Short-run price: decrease; short-run industry output: decrease; movement of firms: enter e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit

e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit

In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both the equilibrium price and quantity to decrease? a) Supply curve shifts to the left; demand curve shifts to the right b) Supply curve shifts to the left; demand curve has no shift c) Supply curve shifts to the right; demand curve shifts to the right d) Supply curve has no shift; demand curve shifts to the right e) Supply curve has no shift; demand curve shifts to the left

e) Supply curve has no shift; demand curve shifts to the left

Which of the following must be true if the revenues of what farmers increase when the price of wheat increases? a) The supply of wheat is price elastic. b) The supply of wheat is income elastic. c) The supply of wheat is income inelastic. d) The demand for wheat is price elastic. e) The demand for wheat is price inelastic.

e) The demand for wheat is price inelastic.

(Look at Graph on #6-7 in Packet) If marginal revenue is equal to P1, all of the following statements are true EXCEPT: a) Total revenue will equal total costs. b) The firm will produce Q1 units of output. c) The firm will produce the efficient level of output. d) The firm will earn a normal profit. e) The firm will increase production in the long run.

e) The firm will increase production in the long run.

Suppose that a family buys all its clothing from a discount store and treats these items as inferior goods. Under such circumstances, this family's consumption of discount store clothing will necessarily a) increase when a family member wins the state lottery b) increase when a family member gets a raise in pay at work c) remain unchanged when its income rises or falls due to events beyond the family's control d) decrease when a family member becomes unemployed e) decrease when a family member experiences an increase in income

e) decrease when a family member experiences an increase in income

Number of Workers: 2, 3, 4, 5 Total Output: 12, 22, 28, 32 Greta already employs 3 workers. if the price of jackets is $5 and the wage rate is $25, she should a) go out of business altogether b) lay off the third worker c) keep the third worker but not employ more workers d) hire two more workers e) hire one more worker

e) hire one more worker

When a perfectly competitive firm sells additional units of output, its total revenue will a) remain constant b) increase rapidly at first, then decline c) increase at a decreasing rate d) increase at an increasing rate e) increase at a constant rate

e) increase at a constant rate

An individual's labor supply curve is derived from that person's preferences about the trade-off between income and a) work b) wealth c) nominal wages d) productivity e) leisure

e) leisure

Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that a) average cost is at a minimum b) price equals marginal revenue c) marginal revenue is greater than marginal cost d) price equals marginal cost e) price is greater than marginal cost

e) price is greater than marginal cost

ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more worker and output increases by 5 units per day, the firm's profits will a) decrease by $5 b) decrease by $75 c) increase by $75 d) increase by $15 e) remain unchanged

e) remain unchanged

If a firm wants to produce a given amount of output at the lowest possible cost, it should use each resource in such a manner that a) it uses more of the less expensive resource b) it uses more of the resource with the highest marginal product c) each resource has just reached the point of diminishing marginal returns d) the marginal products of each resource are equal e) the marginal products per dollar spent on each resource are equal

e) the marginal products per dollar spent on each resource are equal

48. Which of the following is true of the opportunity cost of holding cash? a. It is zero. b. It is represented by the value of the dollar. c. It is equal to the price level. d. It decreases as the price level rises. e. It increases as the interest rate rises.

e. It increases as the interest rate rises.

Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal w rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true?

e. The lender would benefit.

1. Which of the following is the most fundamental issue that economics addresses? a. Choice of appropriate technology b. Reduction of unemployment c. Reduction of budget deficit d. Promotion of privatization e. Useofscarce resources

e. Useofscarce resources

16. Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will a. decrease by more than half b. decrease by half c. decrease by less than half d. exactly double e. increase by less than double

e. increase by less than double

The main benefit of free trade between two countries is that

each country can consume beyond its constraints of resources and productivity

What is the main benefit of trade between countries?

each country can consume beyond its constraints of resources and productivity

The natural rate of unemployment can be defined as the

economy's long-run equilibrium rate of unemployment

Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply ________, but if the bank lends out some of the $100, the money supply ________.

is unchanged, increases

The diagram above shows three production possibilities curves (PPCs). If the current PPC is PPC1, which of the following changes indicates a recession?

movement from point Y to point Z

In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if:

net exports were negative

When commercial banks use excess reserves to buy government securities from the public,

new money is created.

Full employment doesn't include the natural rate of employment and it means that there is ______ cynical unemployment

If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways?

no change of real output; price level increase

How will a contraction in the money supply most likely change nominal interest rate and aggregate demand in the short run?

nominal interest rate will increase and aggregate demand will decrease

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

nominal national income

50. In the long run, an increase in aggregate demand due to an expansion in the money supply will increase a. price level and real output b. nominal output and real output c. nominal output but not the price level d. nominal output and the price level e. real output but not the price level

nominal output and the price level

In the long run, an increase in aggregate demand due to an expansion in the money supply will increase

nominal output and the price level

27. The short-run aggregate supply curve would be vertical if a. nominal wages adjust immediately to changes in the price level b. nominal wages adjust slowly when there is unemployment c. both nominal wages and prices adjust slowly to changes in aggregate demand d. the spending multiplier is very low e. investment demand is very responsive to changes in interest rates

nominal wages adjust immediately to changes in the price level

The short-run aggregate supply curve would be vertical if

nominal wages adjust immediately to changes in the price level

In the narrowest definition of money, M1, savings accounts are excluded because they are

not a medium of exchange

Most economists are ________ that natural resources will eventually limit economic growth. As evidence, they note that the prices of most natural resources, adjusted for overall inflation, have tended to ________ over time.

not concerned, fall

The supply curve for loanable funds slopes upward because

people will forego consumption at higher interest rates and save.

When the Federal Reserve increases the money supply to stimulate aggregate demand, workers believe that this action will cause inflation in the future and ask for higher wages to offset the expected increase in inflation. This is an example of:

rational expectations

The purpose of an expansionary monetary policy is to increase

real GDP.

Which of the following correctly expresses the Fisher equation?

real interest rate = nominal interest rate − inflation rate

Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when

real interest rates in India increase relative to those in Japan

The classical principle of monetary neutrality states that changes in the money supply do not influence ________ variables and is thought most applicable in the ________ run.

real, long

An increase in the international value of the US dollar will most likely benefit

retired US citizens living overseas on their social security checks

If the Federal Reserve purchases government bonds, all of the following will occur except

the discount rate will be forced up.

Price ceiling

the highest legal price a good can be sold for that is set by the government. It is set up to keep prices from getting too high.

In the circular flow diagram of a market economy, which of the following supplies the factors of production?

the household sector

All of the following topics fall within the study of microeconomics EXCEPT

the influence of the government budget deficit on economic growth

The widely held belief that when the central bank creates money, prices rise is called

the quantity theory of money.

In the quantity theory of money, velocity means

the rate at which the money supply turns over.

Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that

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

The determination of investment in an economy comes from the equality of

the three uses of income and aggregate expenditures.

Frictional unemployment

the time spent looking for a job or transferring from one job to another it isn't that important because it doesn't really concern the state of the economy

Your opportunity cost of going to a movie is

the total cash expenditure needed to go to the movie plus the value of your time

Efficiency wages

when an employer will pay a very valuable employee 140,000 when their skill set is actually at 100,000 so that they are encouraged to not leave their job

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