Test 2 Econ

Which is a determinant of aggregate supply? A) interest rates B) productivity C) prices of substitutes D) household expectations

B

Kim recently purchased a perpetual bond for $1,000. The bond pays $50 in interest per year. If market interest rates rise to 7% after her purchase, the price of the bond: A) falls to $700. B) rises to $1,700. C) falls to $714. D) rises to $1,070.

C

If the government offers firms investment tax credits for building new factories, the after-tax rate of return _____, causing the loanable funds _____ curve to shift _____, leading to _____ interest rates. A) rises; demand; rightward; higher B) rises; demand; leftward; higher C) falls; demand; leftward; lower D) rises; supply; rightward; lower

A

Which of the following events would reduce short-run aggregate supply but not long-run aggregate supply? A) A major natural disaster results in the loss of life of 10% of the labor force. B) Government environmental regulations require the use of more expensive energy sources. C) The capital stock of a country rises by 10%. D) Concentration in the leading industries in a country falls.

B

3. Cost-push inflation is a situation in which the: A) short-run aggregate supply curve shifts rightward. B) aggregate demand curve shifts rightward. C) short-run aggregate supply curve shifts leftward. D) aggregate demand curve shifts leftward.

C

6. In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts of these two curves, which of the following is a likely outcome? A) deflation B) higher taxes C) lower imports D) inflation

D

The supply of loanable funds includes: A) saving by the public. B) saving by government entities. C) saving by business firms. D) saving by the public, government entities, and business firms.

D

4. A vertical aggregate supply curve represents full employment in the long run. A) True B) False

A

A decrease in incomes tends to shift the supply of loanable funds curve leftward. A) True B) False

A

An efficient barter system relies on a double coincidence of wants. A) True B) False

A

Credit card companies sometimes offer teaser rates that will rise considerably after the offer period ends. A) True B) False

A

If an economy is in a recession, what would expansionary fiscal policy do? A) shift AD to the right B) shift AD to the left C) shift SRAS to the right D) shift SRAS to the left

A

If you know the marginal propensity to consume, you can calculate the marginal propensity to save. A) True B) False

A

In times of hyperinflation, barter takes the place of money. A) True B) False

A

Missing a minimum payment on your credit card can make it more expensive for you to buy a house in the future. A) True B) False

A

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports and they could also reduce taxes. A) True B) False

A

Which is NOT one of the three basic functions of money? A) a means to collect taxes B) a medium of exchange C) a measure of value D) a unit of account

A

A product demand curve and the aggregate demand curve are negatively sloped for the same reasons. A) True B) False

B

A situation in which a family member assumes a student's college debt is called a deferment. A) True B) False

B

Assume initially the economy is at full employment. If aggregate demand increases, the aggregate price level and costs will _____, and ultimately, the short run aggregate supply curve shifts to the _____. A) rise; right B) rise; left C) fall; right D) fall; left

B

Automatic stabilizers have _____ effects during times of economic prosperity and _____ effects during times of economic downturn. A) contractionary; contractionary B) contractionary; expansionary C) expansionary; contractionary D) expansionary; expansionary

B

Corporate bonds generally have a _____ return on investment than do checking deposits because bonds are _____. A) higher; less risky B) higher; riskier C) lower; less risky D) lower; riskier

B

If the government raises taxes, what will this do to the AD curve? A) AD shifts right. B) AD shifts left. C) AD would not shift. D) AD would shift but in a random direction.

B

Which of the following fiscal policies would least likely result in an increase in aggregate supply? A) an increase in infrastructure spending B) an increase in business regulations C) an increase in grants to fund higher education D) a reduction in marginal tax rates

B

Which of the following would NOT cause a rightward shift in aggregate supply? A) an increase in production by employees B) a decrease in wages paid to employees C) fear of inflation D) a decrease in tax receipts

C

A shift of the long-run aggregate supply curve to the right suggests which of the following? A) an increase in productivity B) an increase in tax revenue C) a decrease in the average standard of living D) a decrease in economic growth

A

Aggregate supply is: A) the real GDP that firms will produce at varying price levels. B) the total supply over a span of several years. C) the amount of goods, but not services, firms supply at various price levels. D) the amount of output that is sold at each price level.

A

Evidence has suggested that borrowing is _____ than taxation by politicians to finance fiscal policy spending, which has led to a(n) _____ of the federal government over the last few decades. A) more favored; expansion B) more favored; contraction C) less favored; expansion D) less favored; contraction

A

If interest rates increase, people want to hold less money. A) True B) False

A

Social Security and Medicare are considered _____ liabilities and are expected to _____ over the next generation. A) unfunded; rise B) unfunded; fall C) funded; rise D) funded; fall

A

The decline in aggregate demand that occurred during the Great Depression caused a drop in real GDP: A) and deflation. B) but an increase in the price level. C) but no change in the price level. D) but a modest rise in inflation.

A

Which of the following is a critical dilemma when implementing fiscal policy in reference to timing lags? A) Fiscal policy requires a short and contentious legislative process. B) Short-term variations in key indicators are common and present randomness in the data. C) The information lag takes up too much time and is too costly. D) The economy may already be in a recovery before fiscal policy is enacted.

D

Which of the following statements do economists generally disagree on? A) No tax revenues would be collected when average tax rates are 0%. B) No tax revenues would be collected when average tax rates are 100%. C) At very high average tax rates, increasing tax rates further would decrease tax revenues. D) At an average tax rate of 50%, tax revenues are maximized for a government.

D

Which set of events would lead to an increase in a country's aggregate demand? A) The country's CPI falls while its currency appreciates. B) The country's inflation rate is lower than inflation rates abroad while debt levels in the country rise. C) Interest rates fall in the country while there is a serious recession in the country's main trading partner. D) Taxes are decreased in the country while expectations of job security rise in the workforce.

D

Which of these is an example of a teaser rate? A) an interest rate for a mortgage on an unaffordable home B) a temporarily low interest rate for a credit card C) an interest rate on a car loan for a luxury automobile D) an interest rate on loans of more than 30 years

B

Consumer spending is NOT affected by: A) wealth. B) consumer confidence. C) taxes. D) inventories.

D

How many prices must a consumer know in a barter economy that produces exactly 20 goods? A) 20 B) 40 C) 95 D) 190

D

Which of the following is a form of U.S. public debt? A) savings bonds B) stocks C) loans from relatives D) private bank mortgages

A

7. According to the wealth effect, as prices fall, people feel wealthier and purchase more goods and services. A) True B) False

A

Reducing government spending, reducing transfer payments, or raising taxes describes which policy? A) contractionary fiscal policy B) expansionary fiscal policy C) monetary policy D) supply-side fiscal policy

A

A breakthrough in solar energy research that halves the cost of electricity will: A) have no effect on the aggregate supply curve. B) shift the aggregate supply curve to the right. C) shift the aggregate supply curve to the left. D) cause the aggregate supply curve to become vertical.

B

Barter as a system tends to work only: A) in small U.S. towns and villages. B) in primitive economies with little product variety. C) when agricultural products are exchanged. D) among large, multinational corporations.

B

Econia's currency appreciates. This will cause: A) aggregate demand to rise. B) aggregate demand to fall. C) a movement upward along Econia's aggregate demand curve. D) a movement downward along Econia's aggregate demand curve.

B

If the government decrees that bottle tops will be treated as money, then a bottle top: A) can still never be money because it has so little intrinsic value. B) is called fiat money. C) will not function well as a unit of account. D) will serve well for international trade.

B

The aggregate demand curve is positively sloped. A) True B) False

B

The aggregate demand curve shows the level of real GDP that firms will produce at different price levels. A) True B) False

B

The most common type of short-term debt is college loans. A) True B) False

B

The supply curve for loanable funds slopes the way it does because if interest rates are low, fewer projects will have a rate of return high enough to justify the investment. A) True B) False

B

Which of the following requires the government to balance its budget over the business cycle? A) annually balanced budget B) cyclically balanced budget C) biannually balanced budget D) functional finance

B

Which of these is NOT a necessary characteristic for something to be accepted and used as money? A) It is easily standardized. B) It must have the words legal tender on it. C) It is divisible. D) It is generally accepted by society.

B

Which one of the following is a reason the crowding-out effect could be mitigated? A) an increase in the saving rate B) deficit spending used for public investment C) an increase in consumer consumption D) a decrease in tax revenues

B

All of the following programs are considered mandatory spending EXCEPT: A) Social Security. B) Medicare. C) national defense. D) interest on national debt.

C

If a government collects $550 billion in taxes and spends $700 billion, it would have a: A) surplus of $150 billion. B) surplus of $1,250 billion. C) deficit of $150 billion. D) deficit of $1,250 billion.

C

If the marginal propensity to consume is 0.6, then the spending multiplier is: A) 6. B) 4. C) 2.5. D) 2.

C

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? A) $11 million B) $50 million C) $60 million D) $275 million

C

If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output? A) aggregate price level decreases; aggregate output decreases B) aggregate price level increases; aggregate output increases C) aggregate price level decreases; aggregate output increases D) aggregate price level increases; aggregate output decreases

C

Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____. A) fall; rise B) fall; fall C) rise; fall D) rise; rise

C

Student loans funded by the government typically offer _____ interest rates than similar bank loans and _____. A) higher; can be paid back later B) higher; must be paid back earlier C) lower; can be paid back later D) lower; must be paid back earlier

C

The curve that shows how much GDP is demanded at various price levels is called: A) the aggregate expenditures schedule. B) the consumption line. C) aggregate demand. D) aggregate supply.

C

The fact that it takes a very long time for Congress to debate and enact fiscal policies such as a tax cut for low-income households is an example of a(n): A) information lag. B) recognition lag. C) decision lag. D) implementation lag.

C

The most important measure in determining whether a country's national debt is a significant problem is: A) the size of the debt in nominal terms. B) the interest rate paid on the debt. C) interest paid on the national debt as a portion of GDP. D) the proportion of the national debt that is held by government agencies.

C

Which of the following events will NOT cause the aggregate demand curve to shift? A) Businesses are optimistic about the economy, investing heavily in new equipment. B) Consumers' wealth declines because of a drop in the stock market. C) A rise in the aggregate price level causes a decline in exports. D) Governments increase spending on national security in the wake of terrorist attacks.

C

Which of the following is an example of an automatic stabilizer? A) consumers spending more when the economy is strong B) business laying off workers during a recession C) unemployed workers claiming unemployment benefits during a recession D) the government raising interest rates to reduce inflation

C

Which of the following would shift the short run aggregate supply curve but not have any impact on the long-run aggregate supply curve? A) an increase in the land area of a country B) an increase in the price level faced by consumers in a country C) an increase in technology D) an increase in market concentration in many industries

C

Which of these would increase M1 in the country where Joe, Nan, and the Hardware Store are located? A) Joe withdraws $500 from his checking account and deposits it in his savings account. B) Joe withdraws $500 from his checking account and gives it to his sister Nan who deposits it in her checking account. C) Joe withdraws $500 from his savings account and deposits it in his checking account. D) Joe spends $500 cash at the Hardware Store and the store deposits the $500 in its checking account.

C

Which statement is true? A) Coins constitute 90% of currency. B) Paper money constitutes 90% of M1. C) Paper money constitutes 90% of currency. D) Coins constitute 90% of M1.

C

Suppose the ZZZ Corporation sells a one-year coupon bond for $1,000 and its coupon payment is $100. In this example, the yield is _____. If instead the price of the bond is $500, the yield is _____. A) 10%; 10% B) 100%; 200% C) 100%; 100% D) 10%; 20%

D

Suppose the government collected $3.2 trillion in tax revenues and spent $3.8 trillion, and discretionary spending was $1.5 trillion. For the government to fully balance the budget this year, how much discretionary spending needs to be cut? A) 10% B) 20% C) 30% D) 40%

D

The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen? A) The company's demand for investments will fall. B) There will be no change in the company's demand for investments. C) The company's demand for investments will first fall as interest rates fall and then rise as technology improves. D) The company's demand for investments will rise.

D

The functions of money include: A) a medium of exchange. B) a unit of account. C) a store of value. D) a medium of exchange, a unit of account, and a store of value.

D

The portion of the national debt that is not held by the Federal Reserve and government agencies include: A) only the internally held debt. B) only the externally held debt. C) neither the internally nor externally held debt. D) both the internally and externally held debt.

D

What did Arthur Laffer suggest President Reagan do in the 1980s? A) increase corporate taxes B) increase income taxes C) increase welfare benefits D) decrease income taxes

D

What is the likely chain of events if asset prices rise? A) People feel poorer, so their spending falls and their saving rises, causing interest rates to fall. B) People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall. C) People feel wealthier, so their spending rises and their saving rises, causing interest rates to fall. D) People feel wealthier, so their spending rises and their saving falls, causing interest rates to rise.

D

What is the one major category that separates national debt from public debt? A) debt held by U.S. citizens B) debt held by foreigners C) debt held by U.S. banks D) debt held by other government agencies

D

When economists warn about the crowding-out effect, they are referring to: A) when prices set too low lead to large crowds. B) when a firm earns a high profit over the past month. C) when banks run out of money to lend. D) when government borrowing reduces private investment.

D