Macro Test
Which of the following statements about a cost-push inflation is correct? a. Cost-push inflation starts when an increase in aggregate demand "pushes" costs higher. b. Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist. c. To persist, cost-push inflation needs a continual series of cost hikes with no change in aggregate demand. d. The United States has never experienced a cost push inflation.
Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist
If the price level is fixed and the slope of the AE curve is 0.80, a $5 billion increase in investment increases equilibrium expenditure by a. $25 billion. b. $15 billion. c. $10 billion. d. None of the above.
a. $25 billion.
If the price level is fixed and the multiplier is 5, an increase in investment spending of $10 billion increases equilibrium expenditure by a. $50 billion. b. $10 billion. c. $5 billion. d. $2 billion.
a. $50 billion.
The MPC plus MPS equals a. 1. b. 0. c. a number between 1 and 0. d. a number not between 0 and 1.
a. 1.
If the MPS = 0.1 and there are no income taxes and no imports, then the multiplier equals a. 10.0. b. 5.0. c. 1.0. d. None of the above.
a. 10.0.
A fall in the federal funds rate shifts the a. AD curve rightward. b. SAS curve rightward. c. LAS curve rightward. d. AD curve leftward.
a. AD curve rightward.
Which of the following is NOT one of the Fed's monetary policy goals? a. Conducting open market operations. b. Promoting maximum employment. c. Insuring price stability. d. Keeping long-term interest rates moderate.
a. Conducting open market operations.
Which of the following is largest? a. Federal government outlays. b. Federal government receipts. c. The budget deficit. d. Federal government receipts equal the budget deficit.
a. Federal government outlays.
What is the largest component of federal government outlays? a. Transfer payments b. Expenditures on goods and services c. International purchases d. Interest on the debt
a. Transfer payments
Cost-push inflation might start with a. a rise in money wage rates. b. an increase in government expenditure. c. an increase in the quantity of money. d. a fall in the prices of raw materials.
a. a rise in money wage rates.
The Fed's actions to fight a recession shift the a. aggregate demand curve rightward. b. aggregate demand curve leftward. c. long-run aggregate supply curve rightward. d. long-run aggregate supply curve leftward.
a. aggregate demand curve rightward.
Demand-pull inflation occurs when a. aggregate demand increases persistently. b. aggregate supply and aggregate demand decrease persistently. c. the government increases its purchases. d. oil prices increase substantially.
a. aggregate demand increases persistently.
The mainstream business cycle theories all assert that the main factor leading to business cycles is fluctuations in the growth of a. aggregate demand. b. short-run aggregate supply. c. long-run aggregate supply. d. expectations.
a. aggregate demand.
When the consumption function shifts upward a. autonomous consumption increases. b. autonomous consumption does not change. c. autonomous consumption decreases. d. disposable income decreases.
a. autonomous consumption increases.
A hike in income taxes is an example of a. discretionary fiscal policy. b. automatic fiscal policy. c. expansionary fiscal policy. d. a multiplier in action.
a. discretionary fiscal policy.
Generational accounting shows that the present value of the government's commitments to pay benefits is ___ the present value of its taxes. a. greater than b. equal to c. less than d. not comparable to
a. greater than
Most economists believe that in the United States an increase in the tax rate a. increases total tax revenue. b. does not change total tax revenue. c. decreases total tax revenue. d. probably changes total tax revenue but the direction of the change is ambiguous.
a. increases total tax revenue.
An increase in expected future income ____ consumption expenditure and an increase in wealth ____ consumption expenditure. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases
a. increases; increases
If the Fed lowers the federal funds rate, it ____ the price level and ____ real GDP. a. raises; increases b. raises; does not change c. raises; decreases d. does not change; increases
a. raises; increases
An increase in investment spending shifts the AD curve ____ by a greater distance when the slope of the AE curve is ____. a. rightward; larger b. rightward; smaller c. leftward; larger d. leftward; smaller
a. rightward; larger
The multiplier is 2.0 and, because of an increase in expected future profit, investment increases by $10 billion. The increase in investment and the multiplier result in the AD curve a. shifting rightward by exactly $20 billion. b. shifting rightward by more than $20 billion. c. shifting rightward by less than $20 billion. d. not shifting and the SAS curve shifting rightward by $20 billion.
a. shifting rightward by exactly $20 billion.
A decrease in the price level a. shifts the AE curve upward. b. shifts the AE curve downward. c. does not shift the AE curve. d. perhaps shifts the AE curve depending on whether the MPC is greater than or less than the MPS.
a. shifts the AE curve upward.
An increase in autonomous expenditure shifts the AE curve a. upward and leaves its slope unchanged. b. upward and makes it steeper. c. upward and makes it flatter. d. downward and makes it steeper.
a. upward and leaves its slope unchanged.
If the slope of the AE curve is 0.80, the multiplier equals a. 10.0. b. 5.0. c. 2.0. d. 0.5.
b. 5.0.
If the Fed adopted inflation rate targeting, it would make an explicit commitment to achieving an inflation target. In addition, the Fed also would intervene in the foreign exchange market to determine the U.S. exchange rate. a. Both sentences are true. b. Only the first sentence is true. c. Only the second sentence is true. d. Both sentences are false.
b. Only the first sentence is true.
In the United States today, which of the following is the largest source of revenue for the federal government? a. Corporate income tax b. Personal income tax c. Indirect tax d. Government deficit
b. Personal income tax
The tax wedge measures the gap between a. potential GDP and real GDP. b. before-tax and after-tax wage rates. c. the demand for labor and the supply of labor. d. government spending and tax revenues.
b. before-tax and after-tax wage rates.
Included in aggregate expenditure are a. consumption expenditure, saving, and government expenditure. b. consumption expenditure, investment, and government expenditure. c. investment, saving, and net exports. d. investment, government expenditure, and disposable income.
b. consumption expenditure, investment, and government expenditure.
Expenditure that depends on the level of income is a. actual expenditure. b. induced expenditure. c. autonomous expenditure. d. equilibrium expenditure.
b. induced expenditure.
The slope of the consumption function is equal to the a. marginal propensity to save. b. marginal propensity to consume. c. marginal propensity to consume divided by the marginal propensity to save. d. marginal propensity to save divided by the marginal propensity to consume.
b. marginal propensity to consume.
To eliminate an inflationary gap, the Fed ____ the federal funds rate and, as a result, aggregate demand ____. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases
b. raises; decreases
If the aggregate demand curve shifts rightward less than expected, a. expectations could not be rational expectations. b. real GDP will be less than potential GDP. c. the real interest rate will be lower than expected. d. the real wage rate will be lower than expected.
b. real GDP will be less than potential GDP.
If aggregate planned expenditure exceeds real GDP, in the short run, a. aggregate planned expenditure will decrease. b. real GDP will increase. c. the price level will fall to restore equilibrium. d. exports decrease to restore equilibrium.
b. real GDP will increase.
The aggregate expenditure curve shows the relationship between aggregate planned expenditure and a. government expenditure. b. real GDP. c. the real interest rate. d. the price level.
b. real GDP.
In a demand-pull inflation, the AD curve shifts____ and the SAS curve shifts ____. a. rightward; rightward b. rightward; leftward c. leftward; rightward d. leftward; leftward
b. rightward; leftward
Once a cost-push inflation is underway, the AD curve shifts ____ and the SAS curve shifts ____. a. rightward; rightward b. rightward; leftward c. leftward; rightward d. leftward; leftward
b. rightward; leftward
When the consumption function lies above the 45 degree line, a. saving is positive. b. saving is negative. c. consumption expenditure is negative. d. disposable income is negative.
b. saving is negative.
The fraction of a change in disposable income saved is called a. the marginal propensity to consume. b. the marginal propensity to save. c. the marginal tax rate. d. none of the above.
b. the marginal propensity to save.
If investment increases by $200 and, in response, equilibrium expenditure increases by $800, then a. the multiplier is 0.25. b. the multiplier is 4.0. c. the slope of the AE curve is 0.25. d. None of the above.
b. the multiplier is 4.0.
According to the new classical cycle theory and the new Keynesian cycle theory, if the Federal Reserve unexpectedly hikes the interest rate and decreases the quantity of money during a recession, a. nothing will happen because the recession is already occurring. b. the recession will deepen, as aggregate demand unexpectedly decreases. c. the recession will end because aggregate supply unexpectedly increases. d. the recession will end because aggregate demand unexpectedly increases.
b. the recession will deepen, as aggregate demand unexpectedly decreases.
It is estimated that the current generation will pay ____ percent of the fiscal imbalance and future generations will pay ____ percent. a. 89; 11 b. 50; 50 c. 43; 57 d. 18; 82
c. 43; 57
Velocity grows at 2 percent, the quantity of money grows at 6 percent and real GDP grows at 3 percent. Hence the inflation rate equals a. 11 percent. b. 7 percent. c. 5 percent. d. 3 percent.
c. 5 percent.
Which of the following happens automatically when the economy goes into a recession? a. Government expenditure on goods and services increases. b. Income taxes rise. c. A budget deficit rises. d. Needs-tested spending falls.
c. A budget deficit rises.
Which is the largest component of M1 money? a. Currency b. Traveler's checks c. Checking deposits d. Savings deposits
c. Checking deposits
Velocity equals a. YM/P. b. PM/Y. c. PY/M. d. M/PY
c. PY/M.
A correctly expected increase in aggregate demand that causes a correctly expected increase in inflation leads to ____ in short-run aggregate supply and ___ in real GDP. a. an increase; an increase b. a decrease; an increase c. a decrease; no change d. a decrease; a decrease
c. a decrease; no change
The intertemporal substitution effect refers to the idea that a. a higher real wage rate increases the quantity of labor supplied. b. a higher real wage rate decreases the quantity of labor supplied. c. a higher real interest rate increases the supply of labor. d. the demand for labor depends on the money wage rate, not the real wage rate although the supply of labor depends on the real wage rate.
c. a higher real interest rate increases the supply of labor.
If the economy has a recessionary gap, in order to restore full employment one potential fiscal policy is a. a tax hike. b. a cut in government expenditures. c. a tax cut. d. a decrease in the tax multiplier.
c. a tax cut.
A fall in the price level leads to a. a downward shift in the aggregate expenditure curve and a movement along the aggregate demand curve. b. an upward shift in the aggregate expenditure curve and a rightward shift in the aggregate demand curve. c. an upward shift in the aggregate expenditure curve and a movement along the aggregate demand curve. d. a movement along both the aggregate expenditure curve and the aggregate demand curve.
c. an upward shift in the aggregate expenditure curve and a movement along the aggregate demand curve.
A recession begins when a. the multiplier falls in value because the marginal propensity to consume has fallen in value. b. autonomous expenditure increases. c. autonomous expenditure decreases. d. the marginal propensity to consume rises in value, which boosts the magnitude of the multiplier.
c. autonomous expenditure decreases.
An increase in income taxes ___ the magnitude of the multiplier. a. increase b. do not change c. decrease d. sometimes increase and sometimes decrease
c. decrease
Supply-side effects generally ____ the impact an increase in government spending has on real GDP and generally ____ the impact a tax cut has on real GDP. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; increase
c. decrease; increase
An open market sale of government securities by the Fed ____ banks reserves and ____ the federal funds rate. a. increases; raises b. increases; lowers c. decreases; raises d. decreases; lowers
c. decreases; raises
Suppose that the federal government's outlays in a year are $2.5 trillion, and that its receipts for the year are $2.3 trillion. The government is running a budget a. surplus of $2.3 trillion. b. surplus of $0.2 trillion. c. deficit of $0.2 trillion. d. deficit of $2.5 trillion.
c. deficit of $0.2 trillion.
. If the supply of loanable funds increases more than the demand for loanable funds, then the real interest rate ____ and the amount of loanable funds ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases
c. falls; increases
The core inflation rate ____ the CPI inflation rate. a. is always lower than b. is always higher than c. fluctuates less than d. cannot be compared to
c. fluctuates less than
The multiplier is 2.0 and, because of an increase in expected future profit, firms increase their investment by $10 billion. As long as the SAS curve is not horizontal, in the short run, equilibrium real GDP will a. increase by $20 billion. b. increase by more than $20 billion. c. increase by less than $20 billion. d. be unaffected.
c. increase by less than $20 billion.
The long-run Phillips curve shows the relationship between a. the price level and real GDP in the long run. b. the price level and unemployment in the long run. c. inflation and unemployment when expected inflation equals the actual inflation. d. inflation and unemployment when expected inflation does not change.
c. inflation and unemployment when expected inflation equals the actual inflation.
When asset prices fall so that banks suffer a capital loss, the face the potential problem of ___; when the currency drain rises significantly, banks face the potential problem of ____. a. illiquidity; illiquidity b. illiquidity; insolvency c. insolvency; illiquidity d. insolvency; insolvency
c. insolvency; illiquidity
Because taxes are imposed on the nominal interest rate, an increase in the inflation rate ____ the aftertax real interest rate. a. raises b. does not change c. lowers d. at first raises and then lowers
c. lowers
A rise in the price of oil a. definitely triggers a cost-push inflation. b. definitely triggers a demand-pull inflation. c. might trigger a cost-push inflation. d. might trigger a demand-pull inflation.
c. might trigger a cost-push inflation.
For its policy instrument(s), the Fed chooses to use a. only the quantity of the monetary base. b. the quantity of the monetary base and the federal funds rate. c. only the federal funds rate d. the federal funds rate and the exchange rate
c. only the federal funds rate
To combat inflation, the Fed ____ the federal funds rate and as a result, the quantity of loans ____. a. lowers; decreases b. lowers; increases c. raises; decreases d. raises; increases
c. raises; decreases
A change in ____ does not change autonomous expenditure. a. the price level b. the interest rate c. real GDP d. any economic variable
c. real GDP
By its definition, autonomous expenditure does NOT change when ____ changes. a. the real interest rate b. government expenditure on goods and services c. real GDP d. investment
c. real GDP
A rise in the natural unemployment rate leads to a ____ in the long-run Phillips curve and ____ in the short-run Phillips curve. a. rightward shift; no shift b. leftward shift; a rightward shift c. rightward shift; a rightward shift d. leftward shift; a leftward shift
c. rightward shift; a rightward shift
If the Fed lowers the federal funds a. the long-term real interest rate rises. b. aggregate demand decreases. c. the exchange rate falls. d. the quantity of money decreases.
c. the exchange rate falls.
The multiplier equals a. 1/(slope of AE curve). b. MPC/(1 - MPC). c. MPS/(MPC). d. 1/(1 - slope of AE curve).
d. 1/(1 - slope of AE curve).
If the slope of the AE curve is 0.75 the multiplier equals a. 1.33. b. 1.50. c. 2.00. d. 4.00.
d. 4.00.
Which of the following is the impulse in the real business cycle theory? a. An unexpected change in aggregate demand. b. A change by the Fed in the growth rate of the quantity of money. c. A change in expectations about future sales and profits. d. A change in the growth rate of productivity.
d. A change in the growth rate of productivity.
Investment increases by $10 billion. In the short run, which of the following increases the effect of this change on equilibrium real GDP? a. A smaller value for the marginal propensity to consume. b. The presence of income taxes. c. A steeper short-run aggregate supply curve. d. A flatter short-run aggregate supply curve.
d. A flatter short-run aggregate supply curve.
If the Fed raises the federal funds a. investment and consumption expenditure decrease. b. the price of the dollar rises on the foreign exchange market so net exports decrease. c. a multiplier process that affects aggregate demand occurs. d. All of the above answers are correct.
d. All of the above answers are correct.
Which of the following increases the amount a household saves? a. A decrease in the household's current disposable income. b. An increase in the household's consumption. c. An increase in the household's net taxes. d. An increase in the household's current disposable income.
d. An increase in the household's current disposable income.
Which of the following shifts the aggregate demand curve rightward year after year? a. A one-time tax cut. b. A one-time increase in government expenditure on goods and services. c. Inflation. d. Growth in the quantity of money.
d. Growth in the quantity of money.
If government expenditure is increased by $500 billion then real GDP increases by ____. a. more than $500 billion b. exactly $500 billion c. less than $500 billion d. None of the above are necessarily correct because more information about the size of the government expenditure multiplier is needed.
d. None of the above are necessarily correct because more information about the size of the government expenditure multiplier is needed
Which of the following is NOT one of the Fed's potential policy instruments? a. The federal funds rate b. The quantity of the monetary base c. The exchange rate d. The inflation rate
d. The inflation rate
The huge 2009 fiscal stimulus was designed to increase ____ and thereby increase ____. a. aggregate supply; potential GDP b. aggregate demand; potential GDP c. aggregate supply; real GDP d. aggregate demand; real GDP
d. aggregate demand; real GDP
The multiplier is 2.0 and, because of an increase in expected future profit, investment increases by $10 billion. If potential real GDP is unaffected, in the long run, equilibrium real GDP will a. increase by $20 billion. b. increase by more than $20 billion. c. increase by less than $20 billion. d. be unaffected.
d. be unaffected.
An increase in the income tax rate a. increases potential GDP. b. can eliminate the income tax wedge. c. increases the demand for labor d. decreases the supply of labor.
d. decreases the supply of labor.
An increase in the income tax rate ____ employment and ____ potential GDP. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases
d. decreases; decreases
An increase in the tax on interest income ____ the supply of saving and ____ the equilibrium amount of investment. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases
d. decreases; decreases
If the Fed raises the federal funds rate, the quantity of money ____ and the supply of loanable funds ____. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases
d. decreases; decreases
Currently the United States has a budget ____ and Japan has a budget ____. a. surplus; surplus b. surplus; deficit c. deficit; surplus d. deficit; deficit
d. deficit; deficit
An increase in the price level shifts the AE curve ____ and ____ equilibrium expenditure. a. upward; increases b. upward; decreases c. downward; increases d. downward; decreases
d. downward; decreases
In the long run, the multiplier a. is greater than 1.0 in value. b. equals 1.0 in value. c. is precisely twice the short-run multiplier. d. equals 0.
d. equals 0.
When the federal funds interest rate is 6 percent, the quantity of reserves demanded is $100 billion. If the quantity of reserves is actually $110 billion, then the a. demand for reserves increases and the demand for reserves curve shifts rightward. b. demand for reserves decreases and the demand for reserves curve shifts leftward. c. federal funds rate rises. d. federal funds rate falls.
d. federal funds rate falls.
The short-run Phillips curve shows the relationship between a. the price level and real GDP in the short run. b. the price level and unemployment in the short run. c. inflation and unemployment when expected inflation equals the actual inflation. d. inflation and unemployment when expected inflation does not change.
d. inflation and unemployment when expected inflation does not change.
If unplanned inventories rise, aggregate planned expenditure is ____ real GDP and firms ____ their production. a. greater than; increase b. greater than; decrease c. less than; increase d. less than; decrease
d. less than; decrease
A rise in the expected inflation rate leads to ____ in the long-run Phillips curve and ____ in the short run Phillips curve. a. an upward shift; no shift b. a leftward shift; an upward shift c. no shift; no shift d. no shift; an upward shift
d. no shift; an upward shift
According to the ____ theory of business cycles, a change in the monetary growth rate has no effect on real GDP. a. Keynesian b. monetarist c. new Keynesian d. real business cycle
d. real business cycle
If the federal government's budget is in deficit even when the economy is at full employment, the deficit is said to be a. persisting. b. non-cyclical. c. discretionary. d. structural.
d. structural.
A major factor why the recovery following the recession of 2008-2009 has been slow is a. the decrease in government expenditure. b. the Fed's policy of quickly boosting the federal funds rate. c. the failure of consumption expenditure to respond to the Fed's interest rate policy. d. the low level of investment that has kept aggregate demand low.
d. the low level of investment that has kept aggregate demand low.
In the monetarist cycle theory, business cycles are the result of fluctuations in a. productivity. b. businesses' animal spirits. c. expectations d. the quantity of money
d. the quantity of money
In 2009 and 2010, the Fed has set the federal funds rate at a. near record highs. b. approximately 10 percent. c. rates that have fluctuated significantly more than normal. d. virtually equal to 0 percent.
d. virtually equal to 0 percent.
The fact that prices are quoted in terms of money reflects money's role as a a. cause of inflation. b. medium of exchange. c. unit of account. d. store of value.
c. unit of account.
An increase in labor productivity ____ potential GDP and ____ real GDP per person. a. decreases; decreases b. decreases; increases c. increases; increases d. increases; decreases
c. increases; increases
An increase in the supply of labor ____ employment and ____ potential GDP. a. increases; decreases b. decreases; increases c. increases; increases d. decreases; decreases
c. increases; increases
The new theory of economic growth assumes that a. the supply of labor increases whenever the wage rate exceeds the subsistence level. b. technological change is the result of luck. c. knowledge does not have diminishing returns. d. economic growth causes nations to converge to the same level of real GDP per person.
c. knowledge does not have diminishing returns.
An increase in population shifts the a. labor demand curve rightward. b. labor demand curve leftward. c. labor supply curve rightward. d. labor supply curve leftward.
c. labor supply curve rightward.
When a bank helps create money, it does so by a. selling some of its investment securities. b. increasing its reserves. c. lending its excess reserves. d. printing more checks.
c. lending its excess reserves.
A bank has desired reserves of $10 million and actual reserves of $9 million. Its can loan a maximum of a. $10 million. b. $1 million. c. -$1 million. d. $0.
d. $0.
This year Pizza Hut makes a total investment of $1 billion in new stores. Its depreciation in this year is $300 million. Pizza Hut's gross investment is ____ and its net investment is ____. a. $1 billion; $1 billion b. $1 billion; $300 million c. $1.3 billion; unknown d. $1 billion; $700 million
d. $1 billion; $700 million
Over the last 100 years, U.S. economic growth per person has averaged about ____ percent per year. a. 15 b. 10 c. 5 d. 2
d. 2
Productivity growth can be the result of a. growth in human capital. b. growth in physical capital. c. technological progress. d. All of the above.
d. All of the above.
The crowding out effect can occur when the a. country is an international borrower. b. supply of loanable funds increases. c. government budget deficit increases. d. demand for investment increases.
c. government budget deficit increases
Depository institutions create liquidity. Depository institutions pool risk. a. Both sentences are true. b. The first sentence is true and the second sentence is false. c. The first sentence is false and the second sentence is true. d. Both sentences are false.
a. Both sentences are true.
The equation of exchange is a. MV = PY. b. MP = VY. c. MY = PV. d. M/Y = PV.
a. MV = PY.
Of the following, which can create an incentive for financial innovation? a. Technological change b. Removal of government regulation c. Low inflation and interest rates d. Liquidity creation
a. Technological change
Which theory of economic growth concludes that in the long run people have only a subsistence income? a. The classical growth theory b. The neoclassical growth theory c. The new growth theory d. All of the theories
a. The classical growth theory
Which of the following increases the supply of loanable funds? a. an increase in disposable income b. an increase in expected future income c. an increase in default risk d. an increase in expected profit
a. an increase in disposable income
To increase its economic growth, a nation's government should enact policies that ____ saving and that ____ international trade. a. encourage; encourage b. encourage; discourage c. discourage; encourage d. discourage; discourage
a. encourage; encourage
For the last 100 years in the United States, growth in real GDP per person a. has averaged 2 percent per year. b. has accelerated in the last half century because of the technological revolution. c. was never negative for any year. d. has averaged about 8 percent per year.
a. has averaged 2 percent per year.
Historical evidence shows that higher monetary growth rates are associated with a. higher inflation rates. b. no change in the inflation rate. c. lower inflation rates. d. higher growth rates of real GDP.
a. higher inflation rates.
If the world real interest rate rises, then a country that is a net foreign lender a. increases the amount of its lending. b. does not change the amount of its lending. c. decreases the amount of its lending. d. None of the above answers is correct because lending might increase, decrease, or not change.
a. increases the amount of its lending.
A government budget deficit a. increases the supply of loanable funds. b. decreases the supply of loanable funds. c. increases the demand for loanable funds. d. decreases the demand for loanable funds.
c. increases the demand for loanable funds.
The most direct way that money replaces barter is through money's use as a a. medium of exchange. b. store of value. c. unit of account. d. trade mechanism.
a. medium of exchange.
National saving is equal to a. private saving plus government saving. b. investment minus private saving. c. investment plus government saving. d. net investment plus depreciation.
a. private saving plus government saving.
The demand for labor curve is downward sloping because the a. productivity of labor diminishes as more workers are employed. b. supply curve of labor is upward sloping. c. demand curve shifts when capital increases. d. None of the above answers are correct because the demand for labor curve is upward sloping.
a. productivity of labor diminishes as more workers are employed.
An increase in default risk ____ the real interest rate and ____ the quantity of loanable funds. a. raises; decreases b. raises; increases c. lowers; decreases d. lowers; increases
a. raises; decreases
An increase in the demand for labor ____ the real wage and ____ the quantity of employment. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases
a. raises; increases
An increase in the government budget deficit ____ the equilibrium real interest rate and ____ the equilibrium quantity of loanable funds. a. raises; increases. b. raises; decreases c. lowers; increases d. lowers; decreases
a. raises; increases.
An increase in the real interest rate ____ the demand for loanable funds curve. a. results in a movement along b. results in a rightward shift of c. results in a leftward shift of d. has no effect on
a. results in a movement along
If the interest rate on an asset falls, the price of the asset a. rises. b. does not change. c. falls. d. None of the above because there is no consistent relationship between the interest rate on an asset and its price.
a. rises.
If firms become more optimistic about the future, then expected profit ____ and the demand for loanable funds curve shifts ____. a. rises; rightward b. rises; leftward c. falls; rightward d. falls; leftward
a. rises; rightward
The discount rate is the interest rate a. the Fed charges for its last resort loans to banks. b. banks charge their finest loan customers. c. banks pay on savings accounts. d. the Fed pays on reserves held by banks.
a. the Fed charges for its last resort loans to banks.
At potential GDP, a. the labor market is in equilibrium so that the quantity of labor demanded equals the quantity supplied. b. the labor market might or might not be in equilibrium. c. the real wage has adjusted so that it equals the money wage. d. the real wage rate must be rising because otherwise people will not work.
a. the labor market is in equilibrium so that the quantity of labor demanded equals the quantity supplied.
The smaller the desired reserve ratio, a. the larger the money multiplier. b. the smaller the money multiplier. c. the smaller M1 is relative to M2. d. None of the above.
a. the larger the money multiplier.
Reserve requirements are rules setting a. the minimum percentage of deposits that must be kept as reserves. b. the minimum amount of the owners' wealth that must be invested in the depository institution. c. what sort of loans the depository institution can make. d. the types of assets a bank can purchase.
a. the minimum percentage of deposits that must be kept as reserves.
An assumption of the classical growth theory is that a. the population growth rate increases when real GDP per person increases. b. saving is more important than investment in determining economic growth. c. capital plays a major role in determining how rapidly the economy grows. d. human capital is the cause of economic growth.
a. the population growth rate increases when real GDP per person increases.
An advance in technology that increases labor productivity shifts the production function ____ and shifts the demand for labor curve ____. a. upward; rightward b. upward; leftward c. downward; rightward d. downward; leftward
a. upward; rightward
Which of the following is money? a. A check written for $200. b. A $200 checking deposit at a bank. c. A credit card with a $200 line of credit. d. All of the above.
b. A $200 checking deposit at a bank.
Which of the following does NOT directly shift the demand for money curve? a. A change in GDP. b. A change in the quantity of money. c. Financial innovation. d. None of the above because they all directly shift the demand for money curve.
b. A change in the quantity of money.
Which of the following is NOT a function of money? a. Medium of exchange b. Barter c. Unit of account d. Store of value
b. Barter
Which group makes decisions about the course of the nation's monetary policy? a. The Fed's Board of Governors b. The FOMC c. The presidents of the Fed's regional banks d. The President and the Senate
b. The FOMC
Which theory of economic growth predicts that nations eventually converge to the same level of real GDP per person? a. The classical growth theory. b. The neoclassical growth theory. c. The new theory of economic growth. d. None of the theories makes this prediction.
b. The neoclassical growth theory.
Which of the following does NOT increase labor productivity? a. an increase in capital b. an increase in aggregate hours c. an investment in human capital d. a discovery of new technologies
b. an increase in aggregate hours
A weakness of the classical theory of growth is its a. emphasis on saving and investment. b. assumption that the growth rate of the population increases when income increases. c. reliance on constant growth in technology. d. neglect of the subsistence real wage.
b. assumption that the growth rate of the population increases when income increases.
A bank's reserves equal its a. cash in its vaults. b. cash in its vaults plus its deposits at the Federal Reserve banks. c. cash in its vaults plus its liquid deposits. d. cash in its vaults plus its liquid deposits plus its deposits at the Federal Reserve banks.
b. cash in its vaults plus its deposits at the Federal Reserve banks.
Juan takes $100 dollars from his checking account and transfers it to his saving account. As a result, M1 ____ and M2 ____. a. increases; increases b. decreases; does not change c. does not change; increases d. does not change; does not change
b. decreases; does not change
An increase in the government budget deficit increases the ____ loanable funds and an increase in the government budget surplus increases the ____ loanable funds. a. demand for; demand for b. demand for; supply of c. supply of; demand for d. supply of; supply of
b. demand for; supply of
The funds used to buy and operate physical capital are a. depreciation. b. financial capital. c. saving. d. wealth.
b. financial capital.
Using data from different countries, it is apparent that a high growth rate of the quantity of money is associated with a a. high growth rate of real GDP. b. high inflation rate. c. low growth rate of velocity. d. low unemployment rates.
b. high inflation rate.
Crowding out refers to the decrease in a. government expenditure that results when thedemand for loanable funds increases. b. investment from the rise in the real interest rate that results from a government budget deficit. c. investment from the rise in the real interest rate that results from a government budget surplus. d. loanable funds that results when the real interest rate rises.
b. investment from the rise in the real interest rate that results from a government budget deficit.
If the interest rate exceeds the equilibrium interest rate, then the quantity of money demanded is ____ than the quantity of money supplied and the interest rate ____. a. less; rises b. less; falls c. greater; rises d. greater; falls
b. less; falls
Technological change a. cannot account for labor productivity growth unless it is combined with growth the supply of labor. b. often is embodied in physical capital. c. needs to be combined with population growth to increase real GDP. d. is a potential source of growth in labor productivity but in reality has had only small effects.
b. often is embodied in physical capital.
According to the neoclassical model of growth, when technology advances and then stops, real GDP per person ____ and the growth rate of real GDP per person ____. a. permanently increases; permanently increases b. permanently increases; does not permanently increase c. does not permanently increase; permanently increases d. does not permanently increase; does not permanently increase
b. permanently increases; does not permanently increase
The desired reserve ratio on deposits is 10 percent. A bank has $2 million of deposits and reserves of $300,000. The bank has excess reserves of a. $300,000. b. $200,000. c. $100,000. d. $0.
c. $100,000.
A bank has desired reserves of $10 million and actual reserves of $9 million. Its excess reserves equal a. $10 million. b. $1 million. c. -$1 million. d. $0.
c. -$1 million.
If the annual average growth rate of real GDP is 3 percent, then the level of real GDP will double in approximately ____ years. a. 100 b. 33 c. 23 d. 10
c. 23
Nominal GDP, PY, is $12 trillion. The quantity of money is $4 trillion. Velocity is a. 12 trillion. b. 12. c. 3. d. 2.
c. 3.
Over the past two decades, in which of the following nations or regions is real GDP per person converging to that in the United States? a. Africa b. Eastern Europe c. China d. In all of the above real GDP per person has been converging to that in the United States.
c. China
____ a liability of the Federal Reserve. a. Government securities are b. Loans to depository institutions are c. Depository institutions' deposits at the Fed are d. U.S. coinage is
c. Depository institutions' deposits at the Fed are
The U.S. central bank is the a. Federal Central Bank. b. Federal Open Market Committee. c. Federal Reserve System. d. U.S. Treasury.
c. Federal Reserve System.
Which of the following factors have economists found to be good for a nation's economic growth? a. Being very close to the equator. b. Government controls on prices that lead to extensive black markets. c. Investing significant amounts of resources in human capital. d. Limiting wasteful investment in new physical capital.
c. Investing significant amounts of resources in human capital.
Which of the following best describes the facts? a. Almost all rich and poor nations are catching up to the level of U.S. GDP per person. b. Almost all rich nations are growing fast enough to catch up to the level of U.S. GDP per person, but virtually no poor nation is growing fast enough to catch up. c. Some poor nations are catching up to the level of U.S. GDP per person, but many poor nations are not catching up. d. No nation is growing fast enough to catch up to the level of U.S. GDP per person.
c. Some poor nations are catching up to the level of U.S. GDP per person, but many poor nations are not catching up.
Which theory of economic growth concludes that growth can continue indefinitely? a. The classical growth theory b. The neoclassical growth theory c. The new growth theory d. All of the theories
c. The new growth theory
The purchase of $1 billion of securities by the Fed is an example of a. a last resort loan. b. a multiple contraction of the quantity of money. c. an open market operation. d. a change in the required reserve ratio.
c. an open market operation.
As the real wage rate increases, the quantity of labor supplied increases a. only because people already working increase the quantity of labor they supply. b. only because the higher wage rate increases labor force participation. c. because people already working increase the quantity of labor they supply and because the higher wage rate increases labor force participation. d. None of the above answers is correct because an increase in the real wage rate decreases the quantity of labor supplied.
c. because people already working increase the quantity of labor they supply and because the higher wage rate increases labor force participation.
Which of the following is NOT a source of funds that can help finance a nation's investment? a. households' saving b. government budget surplus c. consumption expenditure d. borrowing from the rest of the world
c. consumption expenditure
If the currency drain increases, the amount of money the banking system can create a. increases. b. does not change. c. decreases. d. might change but the direction of change depends on the desired reserve ratio.
c. decreases.
The slope of the aggregate production function becomes less steep as the quantity of labor increases, which reflects the effects of a. capital accumulation. b. technological progress. c. diminishing returns. d. population growth.
c. diminishing returns.
A small country is a net foreign lender and its supply of loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ____ and the country's foreign lending ____. a. increases; decreases b. increases; does not change c. does not change; increases d. increases; increases
c. does not change; increases
If the real interest rate is less than the equilibrium real interest rate, the quantity of loanable funds supplied is ____ than the quantity of loanable funds demanded and the real interest rate ____. a. greater; rises b. greater; falls c. less; rises d. less; falls
c. less; rises
Increases in population ____ the real wage rate and ____ real GDP per person. a. do not change; increase b. raise; do not change c. lower; decrease d. raise; increase
c. lower; decrease
An increase in disposable income ____ the equilibrium real interest rate and ____ equilibrium quantity of loanable funds. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases
c. lowers; increases
An increase in the government budget surplus ____ the equilibrium real interest rate and ____ the equilibrium quantity of loanable funds. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases
c. lowers; increases
U.S. currency is a. part of M1 only. b. part of M2 only. c. part of M1 and M2. d. part of neither M1 nor M2.
c. part of M1 and M2
A key assumption of new growth theory is that a. all technological change is the result of luck. b. higher incomes lead to a higher birth rate. c. people's wants will always exceed the economy's ability to satisfy them. d. knowledge is subject to rapidly diminishing returns.
c. people's wants will always exceed the economy's ability to satisfy them.
An individual's wealth at the end of the year equals the person's wealth at the beginning of the year a. plus saving and minus depreciation. b. minus depreciation. c. plus saving. d. minus saving plus depreciation.
c. plus saving.
If a nation's exports exceed its imports, then net exports are ____ and the nation ____ the rest of the world. a. negative; lends to b. negative; borrows from c. positive; lends to d. positive; borrows from.
c. positive; lends to
Since 1970, in the United States the demand curve for M2 money has shifted a. rightward in all but 2 years. b. leftward in all but 2 years. c. rightward in most years until 1989, then leftward for a few years, and rightward most years afterwards. d. leftward in most years until 1989 and then rightward in some years and leftward in others.
c. rightward in most years until 1989, then leftward for a few years, and rightward most years afterwards.
A precondition for increasing labor productivity is a. the existence of an aggregate production function. b. growth in the population. c. social institutions that create the proper incentive system. d. diminishing returns.
c. social institutions that create the proper incentive system.
In the neoclassical theory of growth, growth in ____ is the result of luck. a. saving b. income c. technology d. population
c. technology
An increase in ____ decreases the quantity of money people want to hold. a. the price level b. real GDP c. the interest rate d. the quantity of money
c. the interest rate
Economic growth can be increased by a. taxing savings. b. limiting international trade. c. using government funds to help finance basic research. d. decreasing the length of time for which a patent is effective.
c. using government funds to help finance basic research.
The supply of loanable funds curve has a negative slope. The demand for loanable funds curve has a positive slope. a. Both sentences are true. b. The first sentence is true and the second is false. c. The first sentence is false and the second is true. d. Both sentences are false.
d. Both sentences are false.
____ is a component of M2 but not of M1. a. Currency b. Checking accounts at banks c. Traveler's checks d. Savings accounts at banks
d. Savings accounts at banks
Which of the following increases the demand for loanable funds? a. an increase in disposable income b. an increase in expected future income c. an increase in default risk d. an increase in expected profit
d. an increase in expected profit
Depository institutions do all the following EXCEPT a. lower the cost of borrowing. b. create liquidity. c. pool risks. d. create required reserve ratios.
d. create required reserve ratios.
A bank's reserves include the ____ and the ____. a. deposits it has accepted; cash it keeps in its vault b. liquid loans it has made; deposits it keeps at the Federal Reserve c. liquid securities it has purchased; liquid loans it has made d. deposits it keeps at the Federal Reserve; cash it keeps in its vault
d. deposits it keeps at the Federal Reserve; cash it keeps in its vault
Juan takes $100 dollars from his wallet and deposits it in his checking account. As a result, M1 ____ and M2 ____. a. increases; increases b. increases; does not change c. does not change; increases d. does not change; does not change
d. does not change; does not change
When the global loanable funds market is in equilibrium, then the real interest rate is a. higher in large countries. b. lower in large countries. c. equal in all countries. d. equal in all countries after adjusting for risk.
d. equal in all countries after adjusting for risk.
If the expected profit falls, as a result the equilibrium real interest rate ____ and the equilibrium quantity of loanable funds ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases
d. falls; decreases
The quantity theory of money is the idea that a. the quantity of money is determined by banks. b. the quantity of money serves as a good indicator of how well money functions as a store of value. c. the quantity of money determines real GDP. d. in the long run, an increase in the quantity of money causes an equal percentage increase in the price level.
d. in the long run, an increase in the quantity of money causes an equal percentage increase in the price level.
If a bank's net worth is negative, then the bank definitely is a. liquid. b. illiquid. c. solvent. d. insolvent.
d. insolvent.
It is good for economic growth if a nation a. imposes price controls on investment goods. b. is close to the equator. c. limits international trade. d. is a capitalist nation.
d. is a capitalist nation.
A financial institution ____ a borrower and ____ a lender. a. is not; is not b. is not; is c. is; is not d. is; is
d. is; is
Technological advances that increase labor productivity and shift the aggregate production function higher, ____ the real wage rate and ____ real GDP per person. a. do not change; increase b. raise; do not change c. lower; decrease d. raise; increase
d. raise; increase
An increase in expected future income shifts the a. demand for loanable funds curve rightward. b. demand for loanable funds curve leftward. c. supply of loanable funds curve rightward. d. supply of loanable funds curve leftward.
d. supply of loanable funds curve leftward.
An increase in disposable income shifts the ____. a. demand for loanable funds curve rightward b. demand for loanable funds curve leftward c. supply of loanable funds curve leftward d. supply of loanable funds curve rightward
d. supply of loanable funds curve rightward
Expected profit rises a. when the real interest rate falls. b. during business cycle recessions. c. when sales fall so that the company has time to make investments. d. when technology advances make firms optimistic about future profits.
d. when technology advances make firms optimistic about future profits.
