Macroeconomics Test Questions
Physical capital is
the factories and machinery used to produce other goods and services
Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.
an expansionary; raise
An economic naturalist is someone who:
applies economic insights to understand everyday life
An increase in the nominal exchange rate, e, defined as the number of units of the foreign currency that one unit of the domestic currency will buy, indicates that the domestic currency has ______ relative to the foreign currency.
appreciated
Purchasing power parity is the theory that nominal exchange rates are determined:
as necessary for the law of one price to hold
For a given domestic and foreign price level, a decrease in the nominal exchange rate ______ the real exchange rate.
decreases
A higher real interest rate ______ investment spending and ______ consumption spending.
decreases; decreases
When housing prices decrease, household wealth _____, and consumption _____.
decreases; decreases
A lower real interest rate ______ saving and ______ consumption spending.
decreases; increases
In an open economy, an increase in capital inflows ______ the equilibrium domestic real interest rate and ______ the quantity of domestic investment.
decreases; increases
Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, which causes domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, the demand for labor in the shoe industry ______ and the demand for labor in the computer industry ______.
decreases; increases
To the extent that households are target savers who save to reach a specific goal, an increase in the interest rate ______ household saving and a decrease in the interest rate ______ household saving.
decreases; increases
If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV set, then the
demand for labor by the XYZ-TV Company decreases
If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV set, then the:
demand for labor by the XYZ-TV company decreases
European households wishing to purchase shares of stock in an American company are ______ the foreign exchange market.
demanders of U.S. dollars in
In a free market, if the price of a good is below the equilibrium price, then
demanders, to acquire the good, will bid the price higher
One factor that contributed to the growth in the share of population employed in the United States between 1960 and 2010 was increased
female labor force participation
An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.
increases; expansionary
The construction of the interstate highway system in the United States is an example of a government policy to promote economic growth by
increasing physical capital
The Federal Reserve can decrease the money supply by:
increasing reserve requirements
One trend in labor markets i
increasing wage inequality in the United States
If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value, it:
is no longer available to stabilize the domestic economy
When government runs a budget deficit, it makes up the difference by:
issuing government bonds
From a macroeconomic perspective, the problem of low household saving has probably been overstated because:
it is national saving, not household saving, that allows an economy to accumulate new capital
If government spending increases by $1 million while net taxes are unchanged, then:
public saving decreases
If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.
purchase; increases
From the point of view of a particular country, capital inflows are:
purchases of domestic assets by foreigners
The government purchases component of GDP includes
purchases of final goods and services
In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:
reduce production
You are the Minister of Trade for a small island country with the following annual PPC: You are negotiating a trade agreement with a neighboring island with the following annual PPC: If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will:
refuse their offer because the opportunity cost to you of a coconut is more than 2 fish
The Principle of Increasing Opportunity Costs states that:
when increasing production, resources with the lowest opportunity costs should be used first
The economy is in long-run equilibrium:
when the AD and AS curves intersect at potential output, Y*
For two goods X and Y to be classified as substitutes, it must be the case that
when the price of X rises, the demand for Y increases
For two goods X and Y to be classified as substitutes, it must be the case that:
when the price of X rises, the demand for Y increases
If the quantity supplied of money is less than the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal.
sell; fall; rise
Consumption expenditures include spending by households on
services
A supply-side policy is a policy that:
shifts the long-run aggregate supply curve
As the rate of inflation increases, the increased cost to a consumer of more frequent trips to the bank to make cash withdrawals represents an increase in the:
shoe leather costs of inflation
Frictional unemployment is
short-term unemployment that is associated with the process of matching workers with jobs
Health and safety regulations in the labor market:
should be evaluated by comparing their costs to their benefits
Refer to the figure below. Growing 1,000 bushels of wheat and no bushels of corn each year is
efficient and attainable
If a country is producing at point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an
efficient point
The slope of the consumption function:
equals the marginal propensity to consume
The Scarcity Principle applies to
everyone
If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n):
expansionary gap
"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:
the demand curve
In general, when the demand curve shifts to the right and supply remains constant then
the equilibrium quantity will rise
The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The total cost of a 2.5GHz computer is
$1,000
Assume an economy produces only hamburgers and hotdogs and the base year is 2005. Given the data in the table above, what is the value of real GDP in 2006?
$10,000
Sydney purchases a newly issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 5% coupon rate?
$10,095
In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then real GDP equals:
$102 trillion
If in the economy, business saving equals $240 billion, household saving equals $15 billion and government saving equals -$150 billion, what is the value of national saving?
$105 billion
The foreign exchange market is the market on which the ______ of various nations are traded for one another.
currencies
If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal:
$115 billion
In 2015, the typical consumer purchased the same amount, but the price of books had risen to $30 and the price of hamburgers had risen to $3 each. If 2010 is the base year, what is the CPI in 2015?
$125
The table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. What's the average benefit of 4 car washes per month?
$14
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is
$15,000
Refer to the table below. The average cost of 4 units of this activity is:
$25
Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932.
$32.7 billion; $29.2 billion
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. What is the opportunity cost of going to the concert?
$36
The data below describe the economy of Econland: Public saving in Econland equals
5
The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The total value of donations raised by three employees is
$51,963
Jack has a ticket to see Bo Bice for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing Bo Bice is
$70
Refer to the table below. The average benefit of 2 units of activity is:
$80
The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was _____ percent
-11.8
Based on the labor market diagram below, if the minimum wage is increased from $10 to $12 per hour, the number of unemployed workers will increase by _________ workers
13
Refer to the table below. Corey's opportunity cost of delivering of a pizza is making:
2 pizzas
Based on the Keynesian cross diagram, short-run equilibrium output equals:
4,000
Refer to the figure below. If this economy is currently producing at point C, then the opportunity cost of providing 100 additional units of medical care would be
400 warheads
Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is
5
The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?
Higher gas prices increased the cost of driving a SUV
The following table provides nominal exchange rates for the U.S. dollar. Based on these data, the nominal exchange rate equals approximately ______ pesos per Canadian dollar or, equivalently, ______ Canadian dollars per peso.
6.222; 0.161
The following table provides data for an economy in a certain year. Given the data in the table, compute the investment component of GDP.
70
You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $61.06 for one share of the stock today, you expect a dividend payment of $4, and the rate of return on safe assets is 5%, how much is your risk premium?
8.0%
Suppose the following information describes the economy (Hint: Close Economy): Private saving equals ____; public saving equals ______; national saving equals ____.
800;200;1000
In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals:
900 + 0.80Y
The seven leaders of the Federal Reserve System headquartered in Washington, D.C. constitute the:
Board of Governors
Planned aggregate expenditure (PAE) equals:
C + Ip + G + NX
Over the period from 1950 to 2010, which country experienced the fastest average annual growth rate of real GDP per person?
China
Which of the following would not be studied in macroeconomics?
History of gasoline prices
Refer to the figure below. If this restaurant goes from producing 20 to 25 pizzas per hour, then which of the following statements is true?
It has to give up fewer than 12.5 salads
Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true?
Last semester's grades were lower than your overall GPA
Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
Lewis should specialize in pies, and Cathy should specialize in cakes
The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. The economy experienced an expansion that lasted from:
May 1954 to April 1957
Every time you go to the grocery store, you try to wait in the shortest line. But the lines always seem to be roughly the same length. Why?
Other people are trying to choose the shortest line too
The downward slope of the production possibilities curve illustrates the
Scarcity Principle
Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information:
Steve's saving has increased by $300
Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause
The U.S.'s production possibilities curve to shift outward faster than Nepal's
The figure below shows Becky's daily production possibilities curve for dresses and skirts. The maximum number of skirts that Becky can make in a day is represented by point
V
The figure below shows Becky's daily production possibilities curve for dresses and skirts. The figure below shows Becky's daily production possibilities curve for dresses and skirts. Of the labeled points, only ______ are efficient.
W, X, Y, Z, and V
In symbolic terms where Y equals real GDP, POP equals total population, and N equals the number of employed workers, Y/POP must equal
Y/NxN/POP
Each of the following would decrease the supply of U.S. dollars, shifting the supply curve for dollars to the left, except:
a depreciation of the U.S. dollar relative to other currencies
The United States generally has a comparative advantage in the development of technology because it has
a disproportionate share of the world's best research universities
The entire group of buyers and sellers of the particular good or service makes up
a market
At the time it collapsed in 1991, the Soviet Union possessed all of the factors that promote increases in economic growth except:
a political and legal environment that promoted economic productivity
When actual output is less than potential output, there is ______ output gap and the inflation rate will ____.
a recessionary; be lower than the expected rate of inflation
When actual output is less than potential output, there is ____ output gap and the rate of inflation will tend to ____.
a recessionary; decrease
If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as:
a store of value
For a given inflation rate, if increasing threats to domestic security cause the government to increase military spending, then the ______ shifts _____.
aggregate demand curve; right
Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is
an economic problem because Chris has only one hour, and engaging in one activity means giving up the other
Refer to the figure below. Suppose that the economy is initially in equilibrium with output Y2 and inflation rate of π3. An increase in military spending will generate:
an expansionary gap
Money is
any asset used to make purchases
An economic naturalist is someone who
applies economic insights to understand everyday life
Total taxes paid divided by total before-tax income is called the:
average tax rate
When an individual deposits currency into a checking account:
bank reserves increase, which allows banks to lend more and increases the money supply
Real GDP is measured in ______ prices; nominal GDP is measured in ______ prices.
base-year; current
Refer to the table below. According to the table, Julia has the absolute advantage in
both pies and cakes
Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that producer
can produce more of one good without producing less of the other good
Investment spending includes spending on:
capital goods, residential housing, and changes in inventories
Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas
causes the price you pay for gas to increase
The situation in which central bankers are insulated from short-term political considerations and are allowed to take a long-term view of the economy is called:
central bank independence
In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm:
changes production levels to meet the demand
Economics is the study of
choice in the face of limited resources
The two main responsibilities of the Federal Reserve System are to ______ and to ______.
conduct monetary policy; oversee financial markets
Holding other factors constant, an increase in the tax rate on revenue generated by capital will
decrease investment
In a nation restricts imports, it will
decrease the total value of goods and services produced in that nation
In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will ______ and the level of capital investment in the country will _____, holding other factors constant.
decrease; increase
Holding constant risk and the real returns available abroad, lower domestic real interest rates ______ capital inflows, ______ capital outflows, and ______ net capital inflows.
decrease; increase; decrease
House prices in the U.S. increased dramatically _____, and decreased dramatically ______.
from 2001 to 2006; from 2007 to 2009
Real GDP is not a perfect measure of economic well-being because it excludes the value of all of the following except
goods and services available in the market economy
An example of a government policy to enhance technological progress is
government support for basic research
At the national level, higher saving rates lead to ______ and higher standards of living.
greater investment
At the household level, higher saving rates lead to ______ and greater economic security.
greater wealth
In the United States between 1970 and 2000, employment:
grew more rapidly than the over-sixteen population
An extremely high rate of inflation is called ___________
hyperinflation
An open-market purchase of government securities by the Fed will:
increase bank reserves, and the money supply will increase
Two methods used to adjust nominal values for inflation are
indexing and deflating
A rapidly growing supply of money will lead to:
inflation
Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is ______ output, and firms will ______ production in response.
less than; decrease
Saving to meet long-term objectives-such as retirement, college attendance, or to purchase a home,-is called ______ saving.
life-cycle
Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is $10,000. However, Richland's real GDP per person is growing at 1 percent per year, and Poorland's real GDP per person is growing at 3 percent per year. After 50 years, real GDP per person in Richland minus real GDP in Poorland is
negative
If both the lender and borrower agree on an 8% interest rate, both expect a 4% inflation rate, and inflation turns out to be 4%, then _______ by the inflation
neither the borrower nor the lender are hurt
The value of the marginal product of labor equals the marginal product of labor
price of output
Policymakers' use of stabilization policy to eliminate output gaps is more appropriate when an economy self corrects very ______ and when the output gap is very ____.
slowly; large
A Luddite is:
someone who opposes the introduction of new technologies
Regarding specialization, it is generally true that
specialization imposes costs as well as benefits
In the market for coffee, for many consumers
tea is a substitute
Refer to the figure below. If this economy were currently operating at point D, then in order to make more movies
the first productive resources to switch to making movies should be those with the highest opportunity cost of making milk
The three broad reasons for saving, as identified by economists, relate to
the life-cycle, precaution, and bequests
The shoe leather costs of inflation include all of the following except:
the lost purchasing power of cash
The demand for labor depends on ______ and _______.
the marginal product of labor; the price of output produced
If the consumer price index increased from 1.52 to 1.65, then it must be the case that ___________ relative to prices in the base year
the weighted average level of prices rose
Banks hold reserves:
to meet depositor withdrawals and payments
Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be _______ because not all of the _________ are accounted for in the marketplace.
too low; costs
GDP can be measured as each of the following except
total business revenues
In the short run, ______ determines output, and in the long run ______ determines output.
total spending; potential output
The number of unemployed divided by the labor force equals the
unemployment rate
Labor income includes
wages, salaries, and earnings of the self-employed
You save $10 on gas every week because you take the bus to school. You have class 5 days a week. What is your average benefit per day of taking the bus to school?
$2
On January 1, 2008, Edward invested $10,000 at 5% interest for one year. The CPI on January 1, 2008 stood at 1.60. On January 1, 2009, the CPI was 1.76. The real rate of interest earned by Edward was ______ percent.
-5
On January 1, 2008, Edward invested $10,000 at 5% interest for one year. The CPI on January 1, 2008 stood at 1.60. On January 1, 2009, the CPI was 1.76. The real rate of interest earned by Edward was _______ percent.
-5
In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is:
0.75
The figure below shows Avery's weekly production possibilities curve for scarves. For Avery, the opportunity cost of making a red scarf is
1 blue scarf
Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. Suppose Smith and Jones begin by producing 0 computers and 220 calculators per hour. If they wish to produce 2 computers and 200 calculators per hour efficiently, then Smith should spend ______, and Jones should spend ______.
12 minutes on computers and 48 minutes on calculators; 1 hour on calculators
Which of the following would increase the investment component of U.S. GDP?
A laundry in Seattle purchases a new clothes-washing machine produced in the U.S.
Which of the following would be classified as a final good?
A new computer sold to a business firm
Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown below. Both of Moe's professors require at least a 65 to pass and a 90 to earn an A. Which of the following is true?
Moe can pass both classes
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending
State College
You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10% off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15% savings. Should you drive downtown to buy the TV?
Yes, because you will save more than $20
You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor?
You should work as a math tutor
In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives autonomous expenditures?
[790 - 700r]
A movement along a demand curve from one price-quantity combination to another is called
a change in quantity demanded
The two parts of planned aggregate expenditure are ______ expenditures and ______ expenditures.
autonomous; induced
Nominal GDP measures the ________ of production
current dollar value
Higher nominal interest rates ______ the amount of money demanded and higher real income ______ the amount of money demanded.
decrease; increases
To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply.
decrease; increasing
In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:
decreased by less than $10 billion
When the Federal Reserve lends reserves to commercial banks, this is an example of:
discount window lending
If Alex uses $800 from her checking account to pay her credit card balance, her wealth:
does not change
If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ______ and public saving ______.
does not change; increases
The self-correcting tendency of the economy means that rising inflation eventually eliminates:
expansionary gaps
For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):
expansionary output gap
For an economy starting at potential output, an increase in planned investment in the short run results in a(n):
expansionary output gap
Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run.
expansionary; higher; potential
If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.
expansionary; raise
All else equal, if U.S. stocks are perceived to have become riskier compared to financial investments in other countries, then the market equilibrium value of the exchange rate for the U.S. dollar will:
fall
Recessions tend to be ______ by ______ the rate of inflation.
followed; a decrease in
An inflation rate of over 500 percent per year would be classified as:
hyperinflation
Most economists believe that the reduced variability of inflation in the U.S. is the result of:
improved monetary policymaking by the Fed
During the Christmas shopping season, the demand for money increases significantly. If the Fed takes no actions to offset the increase in money demand, then nominal interest rates will:
increase
A fiscal policy action to close a recessionary gap is to:
increase government purchases
A decrease in the price of pizza will cause a(n)
increase in quantity demanded
An increase in the size of the working-age population:
increases labor supply
At each value of the domestic interest rate, decreases in the riskiness of domestic assets ______ capital inflows, ______ capital outflows, and ______ net capital inflows.
increase; decrease; increase
Lower nominal interest rates ______ the amount of money demanded and lower real income ______ the amount of money demanded.
increase; decreases
A tax cut that affects both aggregate demand and potential output is predicted to _____ the long-run equilibrium level of output, while inflation _____.
increase; may increase, decrease, or remain unchanged
The benefits of economic growth are _____, while the costs of economic growth are _____.
increased output per person; the consumption sacrificed in exchange for capital formation
The price of a gallon of gasoline at the pump increased by 5 percent at the same time that the inflation rate was also 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____.
increased; did not change
As disposable income increases, consumption:
increases
For a given nominal exchange rate and foreign price level, an increase in the domestic price level ______ the real exchange rate.
increases
Refer to the figure below. As the production of pizza increases, the opportunity cost of producing pizza
increases
Usually an abundance of natural resources ______ average labor productivity
increases
When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:
increases by more than $1,000,000
The current price of a stock increases when:
interest rates decrease
GDP equals the value added by producers of
intermediate goods and services, as well as final goods and services
GDP equals the value added by producers of:
intermediate goods and services, as well as final goods and services
An inflation hawk is someone who:
is committed to maintaining low inflation even at the cost of reduced output and employment
If firms sell more output than expected, planned investment:
is greater than actual investment
If prices in the current year are higher on average than in the base year, real GDP in the current year ______ nominal GDP in the current year.
is less than
Growth of real GDP per person is totally determined by the growth of average:
labor productivity and the proportion of the population employed
Structural unemployment is increased when the wage is kept above the market-clearing wage by
labor unions
Government policies that increase the long-term economic growth rate by a small amount result in ______ in average living standards
large increases
Explanations for the high saving rate in Japan consistent with the bequest reason for saving include:
leave bequests to immediate family
GDP excludes important factors that affect people's well-being, such as the value of:
leisure time
Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown below. The Principle of Increasing Opportunity Cost is reflected in the fact that the opportunity cost going from 70 to 80 in economics is
lower than the opportunity cost of going from 80 to 90 in economics
The field of economics that would be most concerned with a recent fall in interest rates
macroeconomics
Starting from full employment at the initial target inflation rate, if there is an adverse inflation shock, then the Federal Reserve must _____ in order to keep inflation at the initial target level.
maintain the initial target inflation rate
Refer to the figure below. Relative to point B, at point C this restaurant is:
making more pizza and fewer salads
Refer to the table below. According to the table, Corey has the absolute advantage in
making pizza
The exchange rate that equates the quantities of currency supplied and demanded in the foreign exchange market is called the ______ exchange rate.
market equilibrium value of the
The buyer's reservation price of a particular good or service is the:
maximum amount the buyer would be willing to pay for it
The real wage is the wage:
measured in terms of purchasing power
Varying the quantity of output produced and sold at preset prices is called:
meeting demand
A reserve requirement set by the Federal Reserve is the:
minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain
One problem with using monetary policy to address "bubbles" in asset markets is that:
monetary policy is not a very good tool for addressing the problem of inappropriately high asset prices
Because the Fed determines the money supply, the:
money supply curve is vertical
The quantity equation states that:
money times velocity equals nominal GDP
If the interest rate in the U.S. rises, U.S. financial assets become ______ attractive to buyers and the ______ U.S. dollars will rise.
more; demand for
Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping.
more; upward
Sellers tend to offer _______ for sale as price increases, and so the supply curve is _________ sloping
more; upward
On a graph of a production possibilities curve, an inefficient point is
necessarily an attainable point
Because many European nations have adopted the euro as their common currency, they are ______ able to conduct independent ______ policy.
no longer; monetary
There is ______ connection between the strength of a country's currency and the strength of its ______.
no simple; economy
One thing that distinguishes normative economic principles from positive economic principles is that
normative principles tell us how people should behave, and positive principles tell us how people will behave
If all prices adjusted immediately to balance the quantities supplied and demanded for all goods and services:
output gapes would not exist
Suppose that the price of chicken rises sharply compared to the price of turkey. In response, consumers buy more turkey and less chicken than they did in the CPI base year. In this situation the CPI will tend to ______ inflation as a result of ______ bias.
overstate; substitution
The Boskin Commission found that the CPI __________ the true inflation rate
overstates
If the Boskin Commission's conclusion is correct, then the CPI ______ the "true" inflation and improvements in living standards over time has been _____.
overstates; underestimated
C + Ip + G + NX equals:
planned aggregate expenditure
Which of the following workers is least likely to lose his/her job during a recession?
police officer
The decision about the forms in which to hold one's wealth is called the ______ decision.
portfolio allocation
A sudden increase in household wealth is an example of a ______ demand shock, which shifts the AD curve to the ______.
postitive; right
If the actual rate of unemployment equals the natural rate of unemployment, then:
potential output equals real GDP
In the long run, total spending affects ______, and output is determined by _______.
prices; inputs and productivity
Diminishing returns to capital is a consequence of firms' incentives to use each piece of capital as productively as possible and illustrates the:
principle of increasing opportunity costs
From an economic perspective, the best response to increased wage inequality is to
provide transition aid to disadvantaged workers
The saving of the government sector is called ______ saving.
public
Globalization ________ the wages of workers in the exporting industries and _________ the wages of workers in the import-competing industries
raises; lowers
For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n):
recessionary output gap
When inflation turns out to be different from what was expected, purchasing power is ________
redistributed
The impact of monetary policy through exchange rates tends to ______ the impact of monetary policy through real interest rates.
reinforce
Which of the following policies would be expected to increase private saving?
replacing the income tax with a consumption tax
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her:
reservation price
The minimum payment you are willing to accept to do a job is your
reservation price
An increase in aggregate supply is usually shown by a ______ shift of the AS curve.
rightward
When the Fed tightens U.S. monetary policy, domestic interest rates ______, making U.S. assets relatively more attractive to foreign investors, and ______ the equilibrium exchange rate.
rise; increasing
All of the following are examples of U.S. Federal Reserve System independence except that:
the Federal Reserve Act does not explicitly prohibit legislative interference in monetary policy
When a U.S. firm engages in outsourcing, it benefits ____ and harms _____
the U.S. consumers of the firm's products; the firm's U.S. employees
All of the following are characteristics of independent central banks except:
the ability of executive branch to overrule central bank actions
Structural unemployment will decrease when:
the minimum wage is decreased
Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ______ in Alpha than in Beta.
the money stock is smaller
Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in the rebate form if
the opportunity cost of the time and trouble of sending in the rebate form is less than $10
An increase in the quantity demanded of tea occurs whenever
the price of the tea falls
If two countries are economically identical except that citizens in one country have more leisure time, then the level of GDP
will be the same in both countries
If two countries are economically identical except that there is significant air and water pollution in one, then the level of GDP:
will be the same in both countries
Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table Principle, Joe and Mary
will make a trade