AP Macro Final MC Questions: 4,5,6
According to the Keynesian model, equilibrium output of an economy may be less than the full-employment level of output because at full employment A) sufficient income may not be generated to keep workers above the subsistence level B) there might not be enough demand by firms and consumers to buy that output C) workers may not be willing to work the hours necessary to produce the output D) interest rates might not be high enough to provide the incentive to finance the production E) banks may not be willing to lend enough money to support the output
B
According to the classical economists, which of the following is most sensitive to interest rates? A) Consumption B) Investment C) Government spending D) Transfer payments E) Intermediate goods
B
An increase in the marginal propensity to consume causes an increase in which of the following? A) Marginal propensity to save B) Spending multiplier C) Savings rate D) Exports E) Aggregate supply
B
An increase in which of the increase aggregate demand? A) Taxes B) Government spending C) The federal funds rate D) Reserve requirements E) The discount rate
B
A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank docs not Isell any of its securities, the maximum amount of additional lending this bank can undertake is A) $15,000 B) $12,000 C) $3,000 D) $1,800 E) 0
C
A decrease in the prices of inputs will cause which of the following to occur in the short run? A) An increase in the aggregate demand and an increase in the price level increase in the price level B) A decrease in the aggregate demand and an increase in the price level C) An increase in the short-run aggregate supply and a decrease in the price level D) An increase in the short-run aggregate supply and an increase in the price level E) A decrease in the short-run aggregate supply in the price level and a decrease in the price level
C
A leftward shift of the long-run aggregate supply curve is most likely consistent with an improvement in a country's standard of living if A) prices fall B) depreciation increases C) population decreases D) taxes decrease E) imports decline
C
According to Keynesian theory, decreasing taxes and increasing goveniment spending will most likely change consumption expenditürés and unemployment in which of the following ways? Consumption Expenditures Unemployment A) Decrease Increase B) Decrease No change C) Increase Decrease D) Increase Increase E) No change Decrease
C
According to Keynesian theory, the most important determinant of saving and consumption is the A) interest rate B) price level C) level of income D) level of employment E) flexibility of wages and prices
C
According to both monetarists and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate? A) The demand for money decreases and market interest rates decrease B) The demand for money increases and market interest rates increase C) The supply of money increases and market interest rates decrease D) The supply of money increases and market interest rates increase E) Both the demand for money and the supply of money increase and market interest-rates increase
C
According to the Keynesian model, an expansionary fiscal policy would tend to cause which of the following changes in output and interest rates? Output Interest Rates A) Increase Increase B) Increase Decrease C) Decrease Increase D) Decrease Decrease E) No change Decrease
A
According to the Keynesian model, an increase inthe money supply affects output more if A) investment is sensitive to interest rates B) money demand is senstitive to interest rates C) the unemplotment rate is low D) consumption is senstitive to the phillips curve E) governement spednign is sensitive to public opinion
A
According to the Keynesian model, which of the following would increase aggregate demand? A) An increase in autonomous investment B) An increase in the discount rate C) A decrease in unemployment compensation payments D) A decrease in government expenditures accompanied by an equal reduction in taxes E) A decrease in government expenditures on public works
A
According to the monetarists, which of the following is true of expansionary fiscal policy? A) It will cause interest rates to rise and crowd out private investment spending B) It should not be used so long as there is a national debt C) It should be used only when some resources are unemployed and the inflation rate is low D) It will decrease aggregate income E) It will increase aggregate income as long as the money supply is decreased at a slow steady rate
A
An important assumption in Keynesian theory is that A) prices are rigid downward and decreases in aggregate demand will lead to an increase in unemployment B) price rigidity will cause downturns in the economy to self-correct C) when aggregate demand is inadequate, prices will fall D) when interest rates are high, many businesses borrow money E) changes in the money supply are the major cause of changes in real output and price level
A
An increase in the international value of the United States dollar will tend to cause A) United States exports to fall B) the national income of the United States to increase C) employment sector of the United in the manufacturing States to increase D) the inflation rate in the Ugited States to increase E) the growth rate of the United States economy to increase
A
Assume that the economy is at full-employment equilibrium in the diagram shown above. Which of the following would lead to stagflation? A) A leftward shift of the short-run aggregate supply curve only B) A rightward shift of the short-run aggregate supply curve only C) A leftward shift of the aggregate demand curve only D) A rightward shift of the aggregate demand curve only E) A rightward shift in both the short-run aggregate supply curve and the aggregate demand curve
A
Expansionary fiscal policy will be most effective when A) the aggregate supply curve is horizontal B) the economy is at or above full-employment output C) transfer payments are decreased, while taxes remain unchanged D) wages and prices are very flexible E) the Federal Reserve simultaneously increases the reserve requirement
A
If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market? A) Demand for United States dollars and supply of euros B) Demand for both United States dollars and euros C) Supply of United States dollars and demand for euros D) Supply of both United States dollars and euros E) International value of the euro relative to the United States dollar
A
If a large increzse in total spending has no effect on real gross domestic product, it must be true that A) the price level is rising B) the economy is 'experiencing high unemployment C) the spending multiplier is equal to 1 D) the economy is in short-run equilibrium E) aggregate supply has increased
A
If at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following? A) Raise taxes by more than $100 billion B) Raise taxes by $100 billion C) Raise taxes by less than $100 billion D) Lower taxes by $100 billion E) Lower taxes by less than $100 billion
A
If crowding out only partially offsets the effects of a tax cut, which of the following changes in interest rates and gross domestic product are most likely to occur? Interest rates: GDP: A) Increase Increase B) Increase Remain unchanged C) Increase Decrease D) Remained unchanged Increase E) Decrease Decrease
A
If purchases of educátion and medical care were counted as investment rather than consumption, gross domestic product would A) not change, because there is no change in total expenditures B) increase, because investment is included in gross domestic product but consumption is not C) increase, because consumption is included in gross domestic product but investment is not D) decrease, because investment is weighted more heavily than consumption in calculating gross domestic product E) decrease, because consumption is weighted more heavily than investment in calculating gross domestic product
A
If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should A) increase the monty supply when government spending is increased B) increase the money supply when government spending is decreased C) decrease the money supply when government spending is increased D) increase interest rates when government spending is incressed E) decrease interest rates when government spending is decreased
A
If the dollar cost of the United States imports from and British pound decreases,: exports to the United Kingdom will-change in which of the following ways? Imports Exports A) Increase Decrease B) Increase Increase C) Increase No change D) Decrease Decrease E) Decrease Increase
A
If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production? A) Government spending increases B) Government spending decreases C) Personal income taxes are increased D) The Federal Reserve sells bonds on the open market E) The Federal Reserve buys bonds on the open market
A
If the money stock decreases but nominal gross domestic product remains constant, which of the following has occurred? A) Income velocity of money has increased B) Income velocity of money has decreased C) Price level has increased D) Price level has decreased E) Real output has decreased
A
If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will lead to a proportional A) Increase in the nominal output B) Decrease in the price level C) Decrease in the nominal interest rate D) Decrease in the real interest rate E) Decrease in the unemployment rate
A
In the Keynesian model, an expansionary monetary policy will lead to A) lower real interest rates and more investment income B) lower real interest rates and lower prices C) higher real interest rates and lower prices D) higher real interest rates and higher real income E) higher nominal interest rates and more investment
A
In the short run, a restrictive and the price level to change in which of the fiscal policy will cause aggregate demand, output, following ways? Aggregate Demand Output Price Level A) Decrease Decrease Decrease B) Decrease Increase Increase C) Increase Decrease Decrease D) Increase Increase Increase E) Not change Not change Not change
A
Increases in real income per capita are made possible by A) improved productivity B) a high labor/capital ratio C) large trade surpluses D) stable interest rates E) high protective tariffs
A
Which of the following arguments is typically associated with classical economists? A) A market economy is self-correcting and thus will not remain in'a recession indefinitely B) A market economy has stable prices and thus is usually free from inflation C) A market economy requires a strong govern- ment to ensure that the market meets the needs of the people D) A market economy needs only moderate assistance from the government to avoid an extended recession E) A market economy eventually results in monopolies in both the input and output markets.
A
Which of the following government policies can reduce the rate of inflation in the short run? A) Providing investment tax credits fro businesses B) Reducing personal income tax rates C) Selling bonds on the open market D) Decreasing the reserve requirement E) Decreasing the discount rate
A
Which of the following is an example of fiscal policy? A) Increasing government expenditures to build highways B) Increasing the money supply to increase income C) Decreasing the discount rate to lower unemployment and inflation D) Decreasing the federal funds rate to stimulate investment E) Decreasing the reserve ratio to increase bank reserves
A
Which of the following is an example of forega direct investment? A) A United States automobile manufacturer building a stoel plant in Russia B) A United States citizen parchasing corporate bonds issued by a French manufacturing firm C) A Mexican citizen purchasing United States Treasury bills D) The Federal Reserve purchasing Japanese yen E) Immigrant workers in the United States sending money to their native country
A
Which of the following is most likely to increase if the public decides to increase its holdings of currency? A) The interest rate B) The price level C) Disposable personal income D) Employment E) The reserve requirement
A
Which of the following is true of the supply shocks? A) They tend to change both relative prices and the general price level in the economy B) They affect only the general price level C) They can be anticipated and offset with appropriate fiscal policy D) They can be anticipated and offset with appropriate monetary policy E) They make the aggregate supply curve vertical
A
Which of the following most undermines the ability of a nation's currency to store value? A) A decrease in the purchasing power of the currency B) The use of credit and debit cards as mediums of exchange C) An increase in the prices of federal bonds D) Appreciation of the currency in the international money market E) An increase in the supply of foreign . currencies in the interpational money market
A
Which of the following would best explain a decline in potential gross domestic product? A) Negative net investment B) The discovery of vast new oil deposits C) A lower price level D) A decrease in the infant mortality rate E) A decrease in wages and profits
A
Which of the following would occur if the international value of the United States dollar decreased? A) United States exports would rise B) More gold would flow into the United States C) United States demand for foreign curreacies would increase D) The United States trade deficit would increase E) Americans would pay less for foreign goods
A
Which of the following would result in the largest increase in aggregate demand? A) A $30 billion increase in military expenditure and a $30 billion open-market purchase of government securities B) A $30 billion increase in military expenditure and a $30 billion open-market sale of government securities C) A $30 billion tax cut and a $30 billion open market sale of government securities D) A $30 billion tax increase and a $30 billion open-market purchase of government securities E) A $30 billion increase in social security payments and a $30 billion open-market sale of government securities
A
An inflationary gap can be eliminated by all of the following EXCEPT A) an increase in personal income taxes B) an increase in the inoney supply C) an increase in interest rates D) a decrease in government spending E) a decrease in net exports
B
Assume that a perfectly cómpetitive financial market for loanable funds is in equilibriun. Which of the following is most likely to occur to the quantity demanded and quantity supplied of loanable funds if the government imposes an effective interest rate ceiling? Quantity Demanded Quantity Supplied A) Increase Increase B) Increase Decrease C) No change No change D) Decrease Increase E) Decrease. Decrease
B
Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most ikely change in which of the following ways? Nominal Interest Rates Bond Prices A) Increase Increase B) Increase Decrease C) Increase Not change D) Decrease Increase E) Decrease Decrease
B
Assume that the government implements a deficit-reduction policy that results in changes in aggregate income and output. Then the Federal Reserve engages in monetary policy actions that reverse the changes in income and output caused by fiscal policy action. Which of the following sets of changes in taxes, government spending, the required reserve ratio, and the discount rate is most consistent with these policies? Taxes Government Spending Required reserve ratio Discount rate A) Increase Increase Decrease Increase В) Increase Decrease Decrease No change C) Increase Decrease Increase Decrease D) Decrease Increase No change Increase E) Decrease Decrease Decrease Increase
B
Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market? A) The demand curve for the currency will shift to the right, and the currency will appreciate B) The demand curve for the currency will shift to the left, and thbe currency will depreciate C) The supply curve for the currency will shift to the left, and the currency will appreciate D) The supply curve for the currency will shift to the left, and the currency will depreciate E) There will be no shift in the demand curve for the currency, but the currency will depreciate
B
Assume that the reserve and that a bank receives a new requirement is 15 percent checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet? Liabilities Required Reseres A) Increase by $200 Increase by $170 B) Increase by $200 Increase by $30 C) Increase by $200 Not change D) Decrease by $200 Decrease by $30 E) Decrease by $200 Decrease by $170
B
Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is A) $2,000 B) $8,000 C) $10,000 D) $20,000 E) $50,000
B
Assume that the supply of loanable funds increases in Country X. The international value of Country X's currency and Country X's exports will most likely change in which of the following ways? International Value of Country X's Currency Country X's Exports A) Decrease Decrease B) Decrease Increase C) Increase Decrease D) Increase Increase E) Not change Not change
B
Compared to expansionary monetary policies adopted to counteract a recession, expansionary fiscal policies tend to result in A) less public spending B) higher interest rates C) lower prices D) a high rate of economic growth E) decreased investment by foreign countries
B
Crowding out is best described as which of the following? A) The decrease in full-employment output caused by an increase in taxes B) The decrease in consumption or private investment spending caused by an increase in government spending C) The decrease in government spending caused by a decrease in taxes D) The increase in the amount of capital outflow caused by the increase in government spending E) The increase in the amount of capital inflow caused by the increase in government spending
B
Crowding out occurs when A) Increases in government spending become ineffective because tax revenues increase as income increases B) Government borrowing to finance its spending decreases private sector investment C) Monetary policy actions decrease the effectiveness of fiscal policy D) Restrictive monetary policy causes the interest rate to increase E) Government spending and private sector spending increase by the same percent- age rate
B
If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways? Supply of Pesos Dollar Price of Peso A) Increase Increase B) Increase Decrease C) Decrease Increase D) Decrease Decrease E) Decrease Not change
B
If a country has a current account deficit, which of the following must be true? A) It must also show a deficit in its capital account B) It must show a surplus in its capital account C) It must increase the purchases of foreign goods and services D) It must increase the domestic interest rates on its bonds E) It must limit the flow of foreign capital investment
B
If businesses are experiencing an unplanned increase in inventories, which of the following is most likely to be true? A) Aggregate than output, and output, and the level of spending will increase B) Aggregate demand is less than output, and the level of spending will decrease C) The economy is growing and will continue to grow until a new equilibrium level of spending is reached D) Planned investment is greater than planned saving and the level of spending will decrease E) Planned investment is less than planned savinf, and the level of spending will increase
B
If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will ocbur to the international:value of: the dollar and to United States exports? International Value of the Dollar Exports A) Increase Increase B) Increase Decrease C) Increase No change D) Decrease Increase E) Decrease Decrease
B
If in response to an increase in investment of $10 billion equilibrium income rises by a total of $50 billion, then the marginal propensity to save is A) 0.1 B) 0.2 C) 0.5 D) 0.8 E) 0.9
B
If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run? Aggregate supply: Employment: A) Increase Increase B) Increase Decrease C) Decrease Increase D) Decrease Decrease E) Not change Increase
B
If private investment of $100 is added to the economy, the equilibrium levels of income and consumption will change in which of the following ways: Equilibrium Level of income: Equilibrium level of consumption: A) Increase Decrease B) Increase Increase C) Increase No change D) No change Increase E) No change No change
B
If real gross domestic product is increasing at 3 percent per year and nominal gross domestic product is increasing at 7 percent per year, which of the following is necessarily true? A) Unemployment is increasing B) The price level is increasing C) Exports exceed imports D) The economy is in a recession E) The govermment is running a budget deficit
B
If the economy is operating in the intermediate, range of the aggregate supply curve and if aggre- gate demand increases due to an increase in net exports, then the price level, output, and the unemployment rate are most likely to change in which of the following ways? Price Level Output Unemployment Rate A) Increase Increase Increase B) Increase Increase Decrease C) Increase Decrease Increase D) Increase Decrease Decrease E) Decrease Decrease Increase
B
If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its curency, and its exports? Capital Flow Currency Exports A) Inflow Appreciation Increase B) Inflow Appreciation Decrease C) Inflow Depreciation Increase D) Outflow Depreciation Increase E) Outflow Appreciation Decrease
B
In an economy with lump-sum taxes and no international sector, assume that the aggregate supply curve is horizontal. If the marginal is equal to 0.8, which of the propensity to consume following will necessarily be true? A) The average propensity to consume will be less than the marginal propensity to consume B) The government expenditure multiplier will be equal to 5 C) A $10 increase in consumption spending will bring about an $80 increase in disposable income D) Wealth will tend to accumulate in the hands of a few people E) The economy will be running a deficit, since consumption expenditures exceed personal saving
B
In the simple Keynesian aggregate expenditure model of an economy, government spending will lead changes in investment or to a change in which of the following? A) The price level B) The level of output and employment C) Interest rates D) The aggregate supply curve E) The demand for money, unless the economy slips into the liquidity trap
B
Supply side economists argue that A) a cut in high tax rates results in an increased deficit and thus increases aggregate supply B) lower tax rates provide positive work incentives and thus shift the aggregate supply curve to the right C) the aggregate supply of goods can only be increased if the price level falls D) increased government spending should be used to stimulate the economy E) the government should regulate the supply of imports
B
Suppose the required reserve ratio is 20% and a single bank with no excess reserves receives a $100 deposit from a new customer. The bank now has excess reserves equal to: A) $20 B) $80 C) $100 D) $400 E) $500
B
The cost of reducing unemployment is accepting a higher rate of inflation. The statement above would most likely be made by a person who believes in the A) quantity theory of money B) Phillips curve C) theory of rational expectations D) paradox of value E) liquidity trap
B
The graph above depicts an économy's aggregate demand and aggregate supply curves. If aggregate levels in the short demand remains constant, the equilibrium price run and in the long run will be which of the following? Short Run Long Run A) OA OA B) OB OA C) OB OC D) OC OA E) OC. OC
B
The long-run aggregate supply curve is likely to shift to the right when there is: A) An increase in the cost of productive resources B) An increase in productivity C) An increase in the federal budget deficit D) A decrease in the money supply E) A decrease in the labor force
B
The price of one nation's currency expressed in terms of another-nation's curency is called A) the world price B) the exchange rate C) the law of one price D) terms of trade E) purchasing-power parity
B
To protect high-cost domestic producers, a country imposes a tariff on an following imported com- modity, Y. Which of ihe is most likely to 'occur in the sbort run? I. A decrease in domestic production of Y II. An increase in domestic production of Y III. An increase in foreign output of Y A) I only B) II only C) II only D) I and III only E) II and II only
B
When the Federal Reserve increases the money supply to stimulate aggregate demand, workers believe that this action will cause infla- tion in the future and ask for higher wages to offset the expected increase in inflation. This is an example of A) adaptive expectations B) rational expectations C) the velocity of money D) the real balance effect E) the money multiplier
B
Which of the following best explains why equi- librium income will rise by more than $100 in response to a $100 increase in government spending? A) Incomes will rise, resulting in a tax decrease B) Incomes will rise, resulting in higher consumption C) The increased spending raises the aggregate price level D) The increased spending increases the money supply, lowering interest rates E) The higher budget deficit reduces investment
B
Which of the following changes would cause an economy's aggregate demand curve to shift to the right? A) An increase in spending on imports B) An increase in autonomousconsumption spending C) An increase in interest rates D) A decrease in the money supply E) A decrease in the overall price level in the economy
B
Which of the following events will most ikely cause an increase in both the price level and real: gross domestic product? A) The prime rate increases B) Exports increase C) Income taxes increase D) Crude oil prices decrease E) Inflationary expectations decrease
B
Which of the following is a basic tenet of classical economic analysis? A) Saving is usually greater than investment B) The economy is self-correcting to full employment C) The economy may be in equilibrium at less than full employment D) Inflation is not a serious economic problem E) The prices of products tend to be inflexible
B
Which of the following is a key feature of Keynesian economics? A) The level of saving depends mostly on interest rates B) The level of government expenditure depends mostly on interest rates C) Supply creates its own demand D) Macroeconomic equilibriun can occur at less than full employment E) Wages are more flexible than prices
B
Which of the following is a possible cause of stagflation (simultaneous high unemployment and high inflation)? A) Increase in labor productivity B) Increase in price for raw materials C) The rapid growth and development of the computer industry D) A decline in labor union membership E) A low growth rate of the money supply
B
Which of the following policiees would a Keynesian recommend during a period of high unemployment and low inflation? A) Decreasing the money supply to reduce aggregate demand B) Decreasing taxes to stimulate aggregate demand C) Decreasing government spending to stimulate aggregate supply D) Balancing the budget to stimulate aggregate supply E) Imposing wage and price controls to stimulate aggregate supply
B
Which of the following policy combinations is most likely to cure a severe recession? Open Market Operations: Taxes: Government Spending: A) Buy Securities Increase Decrease B) Buy Securities Decrease Increase C) Buy Securities Decrease Decrease D) Sell Securtities Decrease Decrease E) Sell Securtities Increase Increase
B
Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States? A) There will be no change in aggregate demand depends only on the income of United States consumers B) Aggregate demand will decrease because the demand for United States exports decrease C) Aggregate demand will decrease because the demand for United States exports decreases relative to the Japanese yen D) Aggregate demand will increase because a decrease in income in Japan causes an increase in income in the United States E) Aggregate demand will increase because interest rates in the United States decrease
B
Which of the following statements concerning economic growth is true? A) If the population is growing faster than potential output, real gross domestic product per capita will definitely increase B) With long-run economic growth, there is an increase in aggregate supply. C) The gap between rich poor must widen with long-run economic growth D) Increasing potential output necessarily increases the economic welfare of the average citizen E) Long-run economic growth is only possible. with demand management policies
B
Which of the following will occur if the federal government runs a budget deficit? A) The expenditure multiplier will increase. national debt will increase B) The size of the national debt will increase C) The economy's output will decrease D) State governments will run a budget surplus to offset the federal deficit E) Interest rates will tend to decline
B
According to the theory of rational expectations, a fully anticipated expansionary monetary policy will A) increase potential output B) increase unemployment C) have no impact on real outpat D) promote the production of consumer goods over capital goods E) result in deflation
C
An increase in which of the following is most likely to increase the long-run growth rate of an economy's real per capita income? A) Population growth B) The proportion of GDP consumed C) The educational attainment of the population D) The supply of money in circulation E) Personal income taxes
C
An increase in which of the following will lead to lower inflation and lower unemployment? A) Exports B) Aggregate demand C) Labor productivity D) Government spending E) The international value of domestic currency
C
An inflationary gap could be reduced by A) an increase in govemment spending B) an increase in the supply of money C) an increase in the income tax rate D) a decrease in the discount rate E) a decrease in the reserve requirement
C
Crowding out due to government borrowing occurs when A) lower interest rates increase private sector investment B) lower interest rates decrease private sector investment C) higher interest rates decrease private sector investment D) a smaller money supply increases private sector investment E) a smaller money supply decreases private sector investment
C
Current equilibrium output equals $2,500,000, potential output equals $2,600,000, and the marginal propensity to consume equals 0.75. Under these conditions, a Keynesian economist is most likely to recommend A) decreasing taxes by $25,000 B) decreasing taxes by $100,000 C) increasing govermment spending by $25,000 D) increasing government spending by $33,333 E) increasing government spending by $100,000
C
Federal budget deficits occur when A) more money is being spent on entitlement programs than has been allocated B) the Internal Revenue Service spends more than it collects in taxes in a given year C) the federal government spends more than it collects in taxes in a given year D) high levels of unemployment use up tax collections E) interest payments on the national debt increase from one year to the next
C
If an effective price floor is removed from a market for a good, then the price and quantity of the good sold will change in which the following ways? Price: Quantity: A) Increase Increase B) Increase Decrease C) Decrease Increase D) Decrease Decrease E) No change Increase
C
If labor costs rise in the automobile industry, which of the following will happen to car prices and the quantity of cars sold? Price: Quantity sold: A) Decrease Decrease B) Decrease Increase C) Increase Decrease D) Increase Increase E) Increase Not change
C
If the economy was ina severe recession, the most expansionary fiscal policy would be to A) decrease both personal income taxes and government spending by equal amounts B) decrease both the reserve requirement and government spending by the same proportion C) decrease personal income taxes and increase government spending by equal amounts D) increase the money supply and increase government spending by the same proportion E) increase social security taxes and increase government spending by equal amounts
C
In an economy with a horizontal aggregate supply curve, an increase in government spending will cause output and the price level to change in which of the following ways? Output Price Level A) Decrease Increase B) Increase Increase C) Increase No change D) No change Increase E) No change No change
C
Open market operations following activities? A) The buying and selling New York stock market of stocks in the New York stock market B) The loans made by the Federal Reserve to member commercial banks C) The buying and selling of government securities by the Federal Reserve D) The govemment's purchases and sales of municipal bonds E) The government's contribution to net exports
C
The annual inflation rate is expected to be 5% over the next 3 years. Juan plans to take out a 3- year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3%, the highest nominal interest rate he is willing to pay is A) 2% B) 3% C) 8% D) 15% E) 25%
C
The classical economists argued that involuntary unemployment would be eliminated by A) increasing government spending to increase aggregate dermand B) increasing the money investment spending supply to stimulate C) self-correcting market forces stemming from flexible prices and wages D) maintaining the growth of the money supply at a constant rate E) decreasing corporate income taxes to encourage investment
C
The long-run growth rate of an increased by an increase in all of the following economy will be EXCEPT A) capital stock B) labor supply C) real interest rate D) rate of technological change E) spending on education and training
C
To stimulate investment in new plant and equipment without increasing the level of real output, the best policy mix is to A) decrease the money supply and increase government spending B) increase the money supply and decrease government spending C) decrease the money supply and increase income taxes D) increase the money supply and decrease income taxes E) decrease income taxes and increase government spending
C
Under which of the following cireumstances would increasing the money,supply be most effective in increasing real gross domestic product? Interest Rates Employment Business Optimism A) High Full High B) High Less than full High C) Low Full High D) Low Full. Low E) Low Less than full Low
C
Using equal amounts of labor hours, Country X and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true? A) Country X has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of watches B) Country Y has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of radios C) Countries X and Y can engage in mutually advantageous trade by exchanging 1 watch for 1 radio D) Country Y is willing to give up 2 watches in exchange for 1 radio from Country X E) Country X is willing to give up 2 radios in exchange for 1 watch from Country Y
C
When the United States govermment engages in deficit spending, that spending is primarily financed by A) increasing the required reserve ratio B) borrowing from the World Bank C) issuing new bonds D) appreciating the value of the dollar E) depreciating the value of the dollar
C
Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run? A) An increase in exports of $100 B) An increase in government spending of $100 C) A decrease in taxes of $100 D) A decrease in imports of $100 E) A decrease in savings of $100
C
Which of the following would cause the United 54States dollar to increase in value compared to the Japanese yen? A) An increase in the money supply in the United States B) An increase in interest rates in the United States C) An increase in the United States trade deficit with Japan D) The United States purchase of gold on the open market E) The sale of $2 billion dollars worth of Japanese television sets to the United States
C
Which of the following would most likely cause rightward shift in an economy's aggregate supply curve? A) An increase in interest B) A tax increase of 50 rates cents per gallon for gasoline C) An across-the-board reduction of wages in the manufacturing sector D) The passage of legislation mandating a reduction in automobile pollution E) The shudown of plants and movement of production of good abroad
C
Which of the following would most likely lead to a decrease in aggregate demand, that is, shift the aggregate demand curve leftward? A) A decrease in taxes B) A decrease in interest rates C) An increase in household savings D) An increase in household consumption E) An increase in business firms' purchases of capital equipment from retained earnings
C
According to the Keynesian savings schedule, when aggregate income increases by a given amount, savings will A) remain the same B) decrease by the amount of the change in income C) increase by the amount of the change in income D) increase by less than the amount of the change in income E) increase by more than the amount of the change in income
D
According to the monetarists, inflation is most often the result of A) high federal tax rates B) increased production of capital goods C) decreased production of capital goods D) an excessive growth of the money supply E) upward shifts in the consumption function
D
According to the monetarists, inflation is most often the result of A) high federal tax rates B) increased production of capital goods C) decreased production of capital goods D) an excessive growth of the money supply E) upward shifts in the consumption function
D
An increase in Japan's demand for United States goods would cause the value of the dollar to A) depreciate because of inflation B) depreciate because the United States would be selling more dollars to Japan C) depreciate because the United States money supply would increase as exports rise D) appreciate because Japan would be buying more United States dollars E) appreciate because Japan would be selling more United States dollars
D
An increase in government spending with no change in taxes leads to a A) lower income level B) lower price level C) smaller money supply D) higher interest rate E) higher bond price
D
An increase in the money supply will have the greatest effect on real gross domestic product if A) the marginal propensity to consume is low B) unemployment is very low C) investment spending is not sensitive to changes in interest rates D) the quantity of money demanded is not very sensitive to interest rates E) the required reserve ratio is high
D
Assume that land in an agricultural economy can be used either for producing grain or for grazing cattle to produce beef. The opportunity cost of converting an acre from cattle grazing to grain production is the A) market value of the extra grain that is produced B) total amount of beef produced C) number of extra bushels of grain that are produced D) amount by which beef production decreases E) profits generated by the extra production of grain
D
If other things are held constant, an increase in United States imports will A) tend to cause the dollar to appreciate because the world supply of dollars will rise B) tend to cause the dollar to appreciate because the world demand for dollars will rise because the world demand for dollars will rise C) have no effect dollar because on the exchange rate for the exports will also increase D) tend to cause the dollar to depreciate because the world supply of dollars will rise E) tend to cause the dollar to depreciate because the world demand for dollars will rise
D
If the Federal Reserve institutes a policy to reduce following is most likely to inflation, which of the increase? A) Tax rates B) Investment C) Government spending D) Interest rates E) Gross domestic product
D
If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways? A) Long-run capital outflows from the United States will decrease B) Long-run capital inflows to the United States will ihcrease C) Short-run capítal outflows from the United States will decrease D) Short-run capital inflows to thẻ United States will decrease E) Short-run capital inflows to the United States, will not change
D
If the marginal propensity to consume increases, the equilibrium levels of income and consumption will change in which of the follow ways: Equilibrium Level of income: Equilibrium level of consumption: A) No change No change B) No change Increase C) Increase No change D) Increase Increase E) Decrease Decrease
D
If the real interest rates in the United States rise relative to rates in other countries, what will happen to the intenational value of the United States dollar and United States net exports? Value of the Dollar Net Exports A) Depreciate Increase B) Depreciate Decrease C) Depreciate No change D) Appreciate Decrease E) Appreciate Increase
D
In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways? Value of Money Supply Interest Rate the Dollar A) Increase Decrease Decrease B) Increase Decrease Increase C) Decrease Decrease Decrease D) Decrease Increase Increase E). Decrease Increase Decrease
D
Total spending in the economy is most likely to increase by the largest amount if which of the following occur to government spending and taxes? Government Spending Taxes A) Decrease Increase B) Decrease No change C) Increase Increase D) Increase Decrease E) No change Increase
D
Which of the following best explains why many United States economists support free international trade? A) Workers who lose their jobs can collect unemployment compensation B) It is more important to reduce world inflation than to reduce United States unemployment C) Workers are not affected; only businesses suffer D) The long-run gains to consumers and some producers exceed the losses to other producers E) Government can protect United States industries while encouraging free trade
D
Which of the following fould dause simultaneous increases in inflation and unemployment? A) A decrease in government spending B) A decrease in the money supply C) A decrease in the velocity of money D) An increase in inflationary expectations E) An increase in the overall level of productivity
D
Which of the following must be true inside its production of a country that is operating possibilities frontier? A) It has a market economy B) It has command economy C) It is in a the early stages of industrial development D) It is using resources inefficiently E) It has plentiful resources
D
Which of the following policies is most likely to encourage long-run economic growth in a country? A) An embargo on high-technology imports B) A decline in the number of immigrants to the country C) An increase in government transfer payments D) An increase in the per capita savings rate E) An increase in defense spending
D
Which of the following would be a current account transaction? A) India buys $10 billion of new United States Treasury bonds B) A United States firm buys 5 percent of the stock of another United States firm C) A United States firm builds a new factory in Kenya D) A United States firm'sells $500 million of its products to a Chinese company E) The United States buys $8 billion worth of euros
D
Which of the following would be most occur if the United States placed-high tariffs on likely to imported goods? A) Workers in the United Statés would have more jobs in the long run B) Income in the United States would be redistributed from the rich to the poor C) The United States standard of living would increase D) The United States economy would become less efficient E) United States exports would increase.
D
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation? A) Inflation had been underpredicted B) The real interest rate had exceeded the nominal interest rate C) The real interest rate had been negative D) People who borrowed funds at the nominal interest rate during this time period would lose E) The economy would expand because of the increased investment and spending
D
With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following? Capital Stock in United States International Valueof the Dollar A) Increase Decrease B) Increase No change C) Increase Increase D) Decrease Increase E) No change Decrease
D
According to Keynesian analysis, if government expenditures and taxes are increased by the same amount, which of the following will occur? A) Aggregate supply will decrease B) Aggregate supply will increase C) Aggregate demand will be unaffected D) Aggregate demand will decrease E) Aggregate demand will increase
E
Changes in which of the following factors would affect the growth of an economy? I. Quantity and quality of human and natural resources II. Amount of capital goods available III. Technology A) I only B) I and II only C) I and III only D) II and II only E) I, II, and II
E
During a mild recession, if policymakers want to reduce uriemployment by increasing investment, which of the following policies would be most appropriate? A) Equal increases in government expenditure and taxes B) An increase in government expenditure only C) An increase in transfer payments D) An increase in the reserve requirement E) Purehase of goyernment securities by the Federal Reserve
E
Economic growth is best defined as A) A reduction in the infant mortality rate B) A decrease in the unemployment rate C) An increase in the labor force participation rate D) A short run increase in GDP without inflation E) A sustained increase in RGDP per capita
E
Expansionary monetary policy can affect the economy through which of the following chains of events? A) Increasing the discount rate lowers the real interest rate, which raises investment B) Reducing taxes lowers the discount rate, which raises consumption C) Increasing government expenditure lowers the interest rate, which raises investmènt D) Increasing the reserve requirement decreases the interest rate, which increases investment E) Buying bonds increases the money supply, which lowers the interest rate
E
Faced with a large federal budget deficit, the government decides to decrease expenditures and tax revenues by the same amount. This action will affect output and interest rates in which of the following ways? Output Interest Rates A) Increase Increase B) Increase Decrease C) No change Decrease D) Decrease Increase E) Decrease Decrease
E
If the economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in A) the velocity of money B) real output C) interest rates D) unemployment E) the price level
E
One way in which the Federal Reserve works to change the United States money supply is by changing the A) number of banks in operation B) velocity of money C) price level D) prime rate E) discount rate
E
Policymakers concerned about fostering long-run growth in an economy that is currently in a reces- sion would most likely recommend which of the following combinations of monetary and fiscal policy actions? Monetary Policy Fiscal Policy A) Sell bonds Reduce taxes B) Sell bonds Raise taxes C) No change Raise taxes D) Buy bonds Reduce spending E) Buy bonds No change
E
Suppose that disposable income is $1,000, consumption is $700, and the marginalpropensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following? Consumption Savings A) $420 $280 B) $600 $400 C) $660 $320 D) $660 $440 E) $760 $340
E
Suppose that the Federal Reserve is committed to keeping the nominal interest rate fixed. To maintain the interest rate target in the face of an expansionary policy, the Federal Reserve can do which of the following? A) Increase the prime rate B) Increase the discount rate C) Increase the federal funds rate D) Engage in open-market purchases E) Engage in open-market sales
E
The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run? A) Falling wages will shift the aggregate demand curve to the right, producing ful employment B) Rising wages will shift the aggregate demand curve to the right, producing full employment C) The economy will remain at point A D) Rising wages will shift the aggregate supply curve to the right, producing full employment E) Falling wages will shift the aggregate supply curve to the right, producing fuli employment
E
The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing? A) Less than Y B) At Y C) At Y D) Greater than Y1 and less than Y2 E) Greater than Y2
E
Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment? A) The government increases spending without increasing taxes B) The govermment increases taxes without increasing spending C) Inflationary expectations decline D) Women and teen-agers stay out of the labor force E) Negative supply shocks cause factor prices to increase
E
Which of the following can be considered a leakage from the circular flow of economic activity? A) Investment B) Government expenditures C) Consumption D) Exports E) Saving
E
Which of the following changes will occur to the demand for United States dollars and the inter- national value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds? Demand for dollars International Value of the dollar A) Decrease Decrease B) Decrease Increase C) Decrease No change D) Increase Decrease E) Increase Increase
E
Which of the following combinations of monetary and fiscal policies is coordinated to increase output? Monetary Policy Fiscal Policy A) Decrease the reserve requirement Increase taxes B) Increase the discount rate Increase government expenditures C) Sell securities Increase taxes D) Sell securities Decrease government expenditures E) Purchase securities Decrease taxes
E
Which of the following measures might be uscd to reduce a federal budget deficit? I. Raising taxes II. Reducing federal spending III. Lowering interest rates A) I only B) II only C) III onlý D) I and III only E) I, II, and III
E
Which of the following monetary and fiscal policy combinations would most likely result in a decrease in aggregate demand? Discount rate: Open Market Operations: Gov. Spending: A) Lower Buys Bonds Increase B) Lower Buys Bonds Decrease C) Raise Sell Bonds Increase D) Raise Buys Bonds Increase E) Raise Sells Bonds Decrease
E
Which of the following policies would most likely be recommended in an economy with an annual inflation rate of 3 percent and an unemployment rate of 11 percent? A) An increase in transfer payments and an increase in the reserve requirement B) An increase in defense spending and an increase in the discount rate C) An increase in income tax rates and a decrease in the reserve requirement D) A decrease in government spending and the open-market sale of government securities E) A decrease in the tax rate on corporate profits and a decrease in the discount rate
E
Which of the following stimulate economic growth? A) Decreased savings B) Decreased wages C) Increased transfer payments D) Increased personal income taxes E) Technological progress
E
Which of the following would most likely cause the United States economy to fall into a recession? A) An increase in welfare payments B) An increase in exports C) A decrease in savings by consumers D) A decrease in the required reserve ratio E) An open market sale by the Federal Reserve
E
