ECON100TEST3

The figure to the right shows the U.S. market for flip-flops. With international​ trade, the equilibrium price in the United States is​ ________ and the United States​ ________ flip-flops.

$12; imports

The figure shows the U.S. market for wheat. When there no international​ trade, the U.S. price of wheat is​ ________ per ton and the U.S. equilibrium quantity is​ ________ tons.

$14; 500,000

If the price level is 100 in one year and rises to 102 the next​ year, then the inflation rate is

2.0 percent.

​________ occurs when a foreign firm sells its exports at a lower price than its cost of production.

Dumping

Because money growth is a major component determining the inflation​ rate, in order to forecast inflation we should forecast actions by the

Fed.

If supporters of restrictions on imports argue that protection is needed to preserve a strategic​ industry; which of the following is being​ used?

National security argument.

When an economy experiences a recession there is

a downward movement along the short-run Phillips curve.

A rational expectation of the inflation rate is

a forecast based on the forecasted actions of the Fed and other relevant determinant factors.

One of the major reasons why the United States exports jet airplanes is because Boeing faces​ ________ opportunity cost than firms in other nations in the production of such aircraft.

a lower

The United States imports t-shirts from Asia. As a​ result, U.S. consumers pay​ ________ otherwise and Asian producers receive​ ________ otherwise.

a lower price​ than; a higher price than

An increase in aggregate demand results in

a lower unemployment rate and a higher price level.

A decrease in taxes should be applied in a situation with

a recessionary gap.

A fall in the federal funds rate leads to

a rise in the price level.

Discretionary fiscal policy is a fiscal policy​ action, such as

a tax​ cut, initiated by an act of Congress.

A country reports that its inflation rate and unemployment rate have both increased. These changes could be the result of

an upward shift of the short-run Phillips curve.

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the economy is

at full employment.

Comparing the aggregate supply curve and the short-run Phillips​ curve, we see that they

both exist because money wage rates are fixed in the short run.

Who gains from international​ trade?

both the importing and the exporting nations

When the Fed​ ________, the U.S. foreign exchange rate falls

buys government securities

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is

called fiscal policy

Automatic stabilizers include

changes in induced taxes and changes in needs tested spending.

If the economy has been producing at a point where real GDP is less than potential​ GDP, what fiscal policy can the federal government use to restore real GDP to potential​ GDP?

cut taxes

The long-run Phillips curve represents the relationship between the inflation rate and the unemployment rate when there is no​ ________ unemployment.

cyclical

Which of the following is an example of a fiscal​ stimulus?

decrease in taxes

If the Fed fears​ inflation, it​ ________ by​ ________ government securities.

decreases aggregate​ demand; selling

An income tax hike

decreases potential GDP.

When a nation starts importing a good or​ service, domestic employment in that industry

decreases.

The short-run Phillips curve is

downward sloping.

On the long-run Phillips​ curve, the unemployment rate

equals the natural unemployment rate but the inflation rate can be any value.

The Fed raises the federal funds rate. Which of the following changes occurs most​ rapidly?

exchange rate rises

The inflation rate that is used to set the money wage rate and other money prices is the

expected inflation rate.

The figure shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by​ $25 billion, then the federal funds rate will​ ________.

fall to 4 percent a year

After a nation starts importing a good from​ overseas, the domestic price of the good

falls.

The interest rate banks charge each other on loans of reserves is called the

federal funds rate.

A major factor in determining the rational expectation of inflation is

forecasts of the​ Fed's monetary policy.

When the​ government's outlays exceed its tax​ revenue, the national debt

grows to finance the budget deficit.

President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply​ side? i. decrease the quantity of money ii. lower taxes iii. lower the interest rate.

ii only

A cyclical deficit is the budget deficit that occurs when i. actual output is at potential output. ii. the economy is at​ full-employment output. iii. tax revenues and outlays are not at their​ full-employment levels.

iii only.

Needs-tested spending

includes transfer payments such as food stamps and unemployment benefits.

During the Great​ Depression, real GDP​ decreased, unemployment​ soared, and the inflation rate was negative. Which would have been the appropriate federal government policy combination to improve economic​ performance?

increase government​ expenditure, decrease​ taxes, increase the quantity of money

Which of the following is an example of an automatic fiscal policy​ action?

increased unemployment payments resulting from higher unemployment

Needs-tested spending

increases as unemployment increases.

If government expenditure on goods and services increase by​ $100 billion, then aggregate demand

increases by more than​ $100 billion.

If government expenditure on goods and services increase by​ $10 billion, then aggregate demand

increases by​ $10 billion multiplied by the government expenditure multiplier.

When a nation exports a good or service in which it has a comparative​ advantage, employment in that industry

increases.

When a nation exports a good or service in which it has a comparative​ advantage, production of the good or service

increases.

Moving along a short-run Phillips​ curve, a reduction in the unemployment rate is achieved by

increasing the inflation rate.

When the economy is in a​ recession, ________ taxes decrease while​ ________ spending increases​ and, as a result of this automatic fiscal​ policy, aggregate demand​ ________.

induced; needs tested; increases

Discretionary fiscal policy is defined as fiscal policy

initiated by an act of Congress.

In the short​ run, if the economy is at full​ employment, then the quantity of real GDP

is equal to potential​ GDP, and the unemployment rate is equal to the natural unemployment rate.

The Federal Reserve monetary policy goals of maximum employment means

keeping the unemployment rate close to the natural unemployment rate.

Discretionary fiscal policy is handicapped by

law making time​ lags, estimation of potential​ GDP, and economic forecasting.

The infant-industry argument for protection is based on the idea of

learning-by-doing.

A nation has a comparative advantage in a good when it has a

lower opportunity cost of producing the good.

Discretionary monetary policy has the drawback that it

makes inflation expectations harder to manage.

If we look at the federal government budget over the past 40 years we see that

most years the budget has been in deficit.

Suppose monetary policy results in the exchange rate falling. As a​ result,

net exports increase.

When the Fed lowers the federal funds​ rate, which of the following economic variables responds most​ rapidly?

other short-term interest rates

Automatic stabilizers are defined as

policy that stabilizes without the need for action by the government.

Maximum employment and moderate long-term interest rates are best achieved with

price stability.

In order to reduce inflationary pressure on the​ economy, what fiscal policy can the government​ use?

raise taxes

When the Federal Reserve wants to slow​ inflation, it

raises the federal funds rate target.

The figure shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by​ $25 billion, then the federal funds rate will​ ________.

rise to 6 percent a year

After a tariff is imposed on a​ good, the price of the good

rises.

In the long​ run, the real interest rate is determined by

saving supply and investment demand.

When the natural unemployment rate​ increases, the short-run Phillips curve​ ________ and the long-run Phillips curve​ ________.

shifts​ rightward; shifts rightward

If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment​ rate, in the long run the SRPC​ ________ and the LRPC​ ________

shifts​ upward; does not change

If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment​ rate, in the long run the SRPC​ ________ and the LRPC​ ________.

shifts​ upward; does not change

Along a short-run Phillips​ curve, the

short-run cost of lower unemployment is higher inflation.

Induced taxes are defined as taxes

that vary with real GDP.

Control of monetary policy rests with

the Federal Reserve.

One problem with the ripple effect from the​ Fed's monetary policy is

the fact that the monetary policy transmission process is long and drawn out.

Which of the following is the​ Fed's monetary policy​ instrument?

the federal funds rate

If the Fed buys U.S. government​ securities,

the federal funds rate will fall.

The short-run Phillips curve is a curve that shows the​ relationship, other things being​ constant, between​ ________ and​ ________.

the inflation​ rate; the unemployment rate

The expected inflation rate is the inflation rate that people forecast and use to help set

the money wage rate.

The​ long-run Phillips curve is a vertical line because

there is no relationship between the natural unemployment rate and the inflation rate.

When people use all the relevant data and principles of economics to forecast​ inflation, they are making

what is called a​ "rational expectation."

If the world price of a good is below the no trade domestic​ price, a country

will benefit from importing the good.

The figure shows the U.S. market for wheat. With international​ trade, U.S. consumers buy​ ________ tons of wheat and U.S. producers produce​ ________ tons of wheat.

​300,000; 700,000

The figure shows the U.S. market for flip-flops. With international​ trade, the United States imports​ ________ flip-flops.

​400,000

In an open market​ purchase, the Fed​ ________ government​ securities, which​ ________ bank reserves and​ ________ the federal funds rate.

​buys; increases; lowers

Government expenditure​ ________ change potential GDP and taxes​ ________ change potential GDP.

​can; can

If the economy is in an equilibrium with real GDP less than potential​ GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously​ ________ taxes and​ ________ government expenditures on goods and services.

​cutting; increasing

Assume the federal government raises taxes​ (a contractionary fiscal​ policy). If the tax increase affects AS and AD​ equally, then real GDP will​ ________ and the price level will​ ________.

​decrease; be unchanged

Ignoring any supply-side ​effects, when taxes are​ hiked, real GDP​ ________ and the price level​ _______

​decreases; falls

Which of the following is a monetary policy​ goal? i. keeping the inflation rate low ii. attaining maximum employment iii. keeping the long-term interest rate at a moderate level

​i, ii, and iii

Transfer payments include i. Social Security benefits ii. Medicare and Medicaid benefits iii. Unemployment benefits

​i, ii, and iii.

A country with a comparative advantage in the production of a good will​ ________ production of the good and​ ________.

​increase; export the good

An increase in the supply of bank loans​ ________ the supply of loanable funds so the real interest rate​ ________ and investment​ ________.

​increases; falls; increases

The​ supply-side effects show that a tax cut on labor income​ ________ the supply of labor and​ ________ employment.

​increases; increases

When the Fed lowers the federal funds​ rate, the quantity of money​ ________ and the supply of loanable funds​ ________.

​increases; increases

Raising the federal funds rate shifts the aggregate demand curve​ ________ so that real GDP​ ________ and the price level​ ________.

​leftward; decreases; falls

When tax revenue​ ________ outlays is​ negative, then the government has a budget​ ________.

​minus; deficit

A government budget deficit​ ________ the​ ________ interest rate and crowds out private​ investment, which​ ________ real GDP growth.

​raises; real; slows

When an import quota is imposed on​ tomatoes, the price of tomatoes​ ________ and the quantity bought​ ________, so domestic consumers​ ________.

​rises; decreases; lose

When the expected inflation rate​ ________, the short-run Phillips curve​ ________.

​rises; shifts upward