Macro Final (Chapters 5-18)

Assuming there is no government or foreign sector, the formula for the multiplier is A) 1/(1 - MPC). B) 1/MPC. C) 1/(1 + MPC). D) 1 - MPC.

A) 1/(1 - MPC).

Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate? A) As the size of the labor force increases, the interest rate increases, and therefore output falls. B) The percentage increase in the number of jobs is less than the percentage increase in output. C) The labor force increases when output increases. D) The change in the number of jobs and the change in the number of people employed are not equal.

A) As the size of the labor force increases, the interest rate increases, and therefore output falls.

Using the saving/investment approach to equilibrium, the equilibrium condition can be written as A) C + I = C + S. B) C = S + I. C) C - S = I. D) C + S = I.

A) C + I = C + S.

Crescent City Bank is currently loaned up. If the required reserve ratio is raised A) Crescent City Bank's net worth will increase. B) Crescent City Bank will have excess reserves that it can lend out. C) Crescent City Bank will still be loaned up because it did not receive any additional deposits. D) Crescent City Bank's actual reserves will increase, but it will still be loaned up.

A) Crescent City Bank's net worth will increase.

An index based on 30 actively traded large companies on the New York Stock Exchange is the A) Dow Jones Industrial Average. B) NASDAQ. C) Standard and Poor's 500 index. D) Blue Chip index.

A) Dow Jones Industrial Average.

The international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade is known by its initials as A) GATT. B) START. C) SALT. D) IMF.

A) GATT.

Which of the following statements is true? A) Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier. B) Increases in the interest rate crowd out both consumption and investment spending, and this increases the size of the multiplier. C) Increases in the interest rate have no effect on the size of the multiplier because higher interest rates cause consumption to increase, which offsets the crowding out of investment. D) Increases in the interest rate cause the size of the multiplier to be smaller if the economy is on the flat portion of the AS curve and to be larger if the economy is on the steep portion of the AS curve.

A) Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier.

If the money supply is measured using ________, fluctuations in velocity are ________. A) M1 rather than M2; increased B) M1 rather than M2; reduced C) M1 rather than M2; eliminated D) M2 rather than M1; eliminated

A) M1 rather than M2; increased

Transaction money is A) M1. B) M2. C) M3. D) M4.

A) M1.

The quantity theory of money can be written as A) MV = PY. B) M/V = PY. C) MV = P/Y. D) MP = VP.

A) MV = PY.

Which of the following is true? A) Measuring money supply using M2 reduces fluctuations in velocity. B) Measuring money supply using M1 reduces fluctuations in velocity. C) Measuring money supply using M2 increases fluctuations in velocity. D) Velocity does not depend on which money supply measurement we use.

A) Measuring money supply using M2 reduces fluctuations in velocity.

A researcher discovered the adhesive that allows a piece of paper to be attached to a surface temporarily and then removed and reattached many times. It was many years before a use was found for this adhesive. Which of the following is true? A) The discovery represents an invention and the finding of a use for the adhesive represents an innovation. B) The discovery represents an innovation and the finding of a use for the adhesive represents an invention. C) This is an example of an invention only. D) This is an example of an innovation only.

A) The discovery represents an invention and the finding of a use for the adhesive represents an innovation.

Which of the following statements is true? A) The multiplier effects for policy changes that are perceived to be temporary are smaller than those for policy changes that are perceived to be permanent. B) The multiplier effects for policy changes that are perceived to be temporary are larger than those for policy changes that are perceived to be permanent. C) The multiplier effects for policy changes that are perceived to be temporary are the same as those for policy changes that are perceived to be permanent. D) There is no relationship between the size of the multiplier effect and whether policy changes are perceived to be temporary or permanent

A) The multiplier effects for policy changes that are perceived to be temporary are smaller than those for policy changes that are perceived to be permanent.

Which of the following is true of a change in nonlabor income? A) There is no substitution effect because a change in nonlabor income does not change the trade-off between work and leisure. B) There is no income effect because a change in nonlabor income does not change the trade-off between work and leisure. C) There is no substitution effect because a change in nonlabor income does not change a household's permanent income. D) There is no income effect because a change in nonlabor income does not change a household's permanent income.

A) There is no substitution effect because a change in nonlabor income does not change the trade-off between work and leisure.

A stock is A) a certificate that certifies ownership of a certain portion of a company. B) document verifying a loan to a company. C) a promise of capital gains to its owner. D) a retained earning of a corporation.

A) a certificate that certifies ownership of a certain portion of a company.

All of the following shift the short-run aggregate supply curve except A) a change in the price level. B) a change in the price of oil. C) a change in the price of raw material. D) a change in wages as a result of a labor strike.

A) a change in the price level.

Disembodied technical change results in A) a change in the production process. B) embodied technical change. C) population growth. D) an increase in the labor supply.

A) a change in the production process.

Assume that the substitution effect dominates the income effect. An increase in both consumption and labor supply would result from A) a decrease in tax rates. B) a decrease in transfer payments. C) an increase in tax rates. D) an increase in transfer payments.

A) a decrease in tax rates.

For any pair of countries, there is A) a range of exchange rates that can lead automatically to both countries realizing the gains from specialization and comparative advantage. B) one single exchange rate that will lead indirectly to one country realizing the gains from specialization and comparative advantage, but not the other country. C) a range of exchange rates that can lead indirectly to one country realizing the gains from specialization and comparative advantage, but not the other country. D) one single exchange rate that will lead automatically to both countries realizing the gains from specialization and comparative advantage.

A) a range of exchange rates that can lead automatically to both countries realizing the gains from specialization and comparative advantage.

The time it takes to see if that there has been a shock to the economy is A) a recognition lag. B) an implementation lag. C) a response lag. D) none of the above.

A) a recognition lag.

Which of the following was not one of the likely causes of the productivity problem in the 1970s? A) a reduction in government regulation B) reduced research and development spending C) a slowdown in investment spending D) low saving rates

A) a reduction in government regulation

If you think the price of a share of stock reflects its true value, but you buy it anyway because you expect to be able to sell it later at a higher price, then you are participating in A) a stock market price bubble. B) insider trading. C) hedging. D) fraud.

A) a stock market price bubble.

An increase in the Z factors represents A) a tightening of monetary policy. B) an easing of monetary policy. C) an expansionary fiscal policy. D) a contractionary fiscal policy.

A) a tightening of monetary policy.

The tendency for investment to increase when aggregate output increases is the result of the ________ effect. A) accelerator B) multiplier C) substitution D) income

A) accelerator

Which of the following will, unambiguously, increase the price level? A) an increase in government spending and an increase in costs B) an increase in government spending and a decrease in costs C) a decrease in government spending and an increase in costs D) a decrease in government spending and a decrease in costs

A) an increase in government spending and an increase in costs

The strict definition of economic growth that serves to increase living standards is A) an increase in real GDP per capita. B) an increase in nominal GDP per capita. C) an increase in capital accumulation per capita. D) an increase in investment per capita.

A) an increase in real GDP per capita.

Assume an economy is in equilibrium at an output level of $2,000 billion. If government spending decreases by $500 billion, then at the output level of $2,000 billion, there is A) an unplanned rise in inventories. B) an unplanned fall in inventories. C) an unplanned inventory change of zero. D) either an unplanned increase or decrease in inventories depending on the value of the MPC.

A) an unplanned rise in inventories.

An increase in the capital stock A) can increase output, even if it is not accompanied by an increase in the labor force. B) provides valuable services directly, but not indirectly. C) can increase output, but only if it is accompanied by an increase in the labor force. D) cannot increase output, even if it is accompanied by an increase in the labor force.

A) can increase output, even if it is not accompanied by an increase in the labor force.

The velocity of money ________ be affected by how frequently workers are paid, and ________ be affected by the development of new financial instruments, such as interest-bearing checking accounts. A) can; can B) can; cannot C) cannot; can D) cannot; cannot

A) can; can

The ________ refers to the amount a household actually works within a given period at the current wage rate. A) constrained supply of labor B) labor-force participation rate C) natural rate of unemployment D) unconstrained supply of labor

A) constrained supply of labor

When interest rates increase, the substitution effect suggests that individuals will A) consume less today. B) save less today. C) consume less in the future. D) save more and consume more today.

A) consume less today.

Which of the following factors is not one of the determinants of a household's budget constraint? A) consumer's preferences B) income C) wealth D) prices

A) consumer's preferences

When the general price level rises A) consumption falls as a result of the real wealth effect. B) consumption increases as a result of the multiplier effect. C) investment rises as a result of the real wealth effect. D) investment rises as a result of the multiplier effect.

A) consumption falls as a result of the real wealth effect.

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________. A) consumption; planned investment B) government spending; planned investment C) planned investment; consumption D) planned investment; government spending

A) consumption; planned investment

During an expansion, automatic stabilizers cause the federal deficit to A) decrease. B) either increase or decrease. C) remain unchanged. D) increase.

A) decrease.

When an individual quits his/her job and decides to stay at home for a while, the labor-force participation rate A) decreases. B) increases. C) stays the same. D) may increase or decrease, depending on the length of time he/she stays at home.

A) decreases.

Output in the short run is determined by which of the following factors when an economy operates at full employment? A) demand B) the labor force C) supply D) the price level

A) demand

Monetarists and Keynesians A) disagree on the speed at which wages change. B) agree on the impact of fiscal policy on the economy. C) disagree on how the Fed changes money supply. D) agree on the usefulness of discretionary policy.

A) disagree on the speed at which wages change.

Technical change which results in a change in the production process is known as A) disembodied technical change. B) embodied technical change. C) per-capita technical change. D) technical catch-up.

A) disembodied technical change.

According to the rational expectation hypothesis, unpredictable shocks may cause A) disequilibrium in the labor market. B) uncontrollable inflation. C) long-lasting recession. D) sustained levels of unemployment.

A) disequilibrium in the labor market.

If the price of a car in the United States is $26,000, and the exchange rate between the dollar and the British pound rises from $1.50 to $2.00 per pound, then the price of the American car in Britain will A) fall. B) rise. C) remain the same. D) be irrelevant, because the British government will impose restrictions on imports from the United States.

A) fall.

The trend of the inventory/sales ratio over time indicates that A) firms are becoming more efficient in their management of inventory stocks. B) the efficiency of firms in their management of inventory stocks has changed very little. C) firms continually have less control over managing their inventory stocks. D) firms are becoming less efficient in their management of inventory stocks.

A) firms are becoming more efficient in their management of inventory stocks.

A boom in the stock market affects the economy because A) firms invest more as demand grows. B) consumers consume less with their money tied up in assets. C) the stock market causes the money supply to rise. D) interest rates fall.

A) firms invest more as demand grows.

If taxes are a function of income, then the AE function is A) flatter than if taxes are a lump-sum amount. B) steeper than if taxes are a lump-sum amount. C) vertical. D) downward sloping.

A) flatter than if taxes are a lump-sum amount.

Any investment made in a country by residents outside that country is A) foreign direct investment. B) foreign exchange. C) gross private domestic investment. D) net exports.

A) foreign direct investment.

The ratio of the change in the equilibrium level of output to a change in government purchases is the A) government purchases multiplier. B) government deficit ratio. C) government surplus-to-deficit ratio. D) output expenditure equilibrium.

A) government purchases multiplier.

Monetarists argue that the money supply should A) grow at a rate equal to the average growth of real output. B) grow at a rate slower than the average growth of real output. C) grow at a rate greater than the average growth of real output. D) be held constant over the business cycle.

A) grow at a rate equal to the average growth of real output.

When the interest rate is low, planned investment is ________ so output is ________. A) high; high B) high; low C) low; high D) low; low

A) high; high

When the aggregate supply curve is ________ the price of factors of production is fixed, with little or no upward pressure on price. A) horizontal B) vertical C) upward sloping D) downward sloping

A) horizontal

What determines the slope of the aggregate supply curve is A) how fast the price of factors of production respond to changes in the price level. B) how much more the economy can produce without any change in the price level. C) how fast the output level changes after a technological advance. D) none of the above.

A) how fast the price of factors of production respond to changes in the price level.

According to the Laffer curve, an increase in the tax rate will increase tax revenue A) if the economy is on the positively sloped section of the curve. B) if the economy is on the negatively sloped section of the curve. C) if the economy is at the farthest point out on the curve. D) no matter the location of the economy on the curve.

A) if the economy is on the positively sloped section of the curve.

Ruby transfers $700 from her saving account to her checking account. This transaction will A) increase M1 and not change M2. B) not change M1 and decrease M2. C) increase both M1 and M2. D) decrease both M1 and M2.

A) increase M1 and not change M2.

To increase output the government could adopt policies that A) increase aggregate supply and aggregate demand. B) decrease aggregate supply and aggregate demand. C) increase aggregate supply and decrease aggregate demand. D) decrease aggregate supply and increase aggregate demand.

A) increase aggregate supply and aggregate demand.

Assume households have positive wealth. If the income effect is greater than the substitution effect, a decrease in interest rates will A) increase saving and decrease consumption spending by households. B) decrease saving and increase consumption spending by households. C) decrease both saving and consumption spending by households. D) increase both saving and consumption spending by households.

A) increase saving and decrease consumption spending by households.

A tariff imposed on imported shoes will cause the domestic price of shoes to ________ and the domestic production of shoes to ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A) increase; increase

According to the Laffer curve, as tax rates increase, tax revenues A) initially increase and then decrease. B) decrease continuously. C) initially decrease and then increase. D) rise continuously.

A) initially increase and then decrease.

Federal funds are A) interbank loans. B) raised by taxes. C) loans that banks get from the Fed. D) bonds issued by the federal government.

A) interbank loans.

Which of the following types of investments is the most volatile? A) inventory investment B) plant investment C) housing investment D) equipment investment

A) inventory investment

According to the Lucas supply function, if people's expectations are on target, then the amount of output they produce A) is not related to the price level. B) is directly related to the price level. C) will always be below potential GDP. D) will always be above potential GDP.

A) is not related to the price level.

To ensure that paper money will be accepted, the U.S. government implicitly promises the public that A) it will not print money so fast that it loses its value. B) it will not change the rate at which the dollar is exchanged for other currencies. C) it will always remain the strongest currency of all industrialized nations. D) the U.S. monetary system will always be backed by a precious metal.

A) it will not print money so fast that it loses its value.

The idea of the ________ is that people make lifetime consumption plans. A) life-cycle theory of consumption B) invisible hand C) law of demand D) classical theory of investment

A) life-cycle theory of consumption

The percentage of workers whose wages are set by explicit contracts increases. This should A) make it more difficult for the labor market to reach an equilibrium after a change in the demand for labor. B) make it easier for the labor market to reach an equilibrium after a change in the demand for labor. C) have no impact on the movement of the labor market toward equilibrium after a change in the demand for labor. D) cause the labor market to always be at an equilibrium, even if there is a change in the demand for labor.

A) make it more difficult for the labor market to reach an equilibrium after a change in the demand for labor.

When the aggregate supply curve is horizontal A) many firms are likely to have excess capacity. B) the economy is close to full capacity. C) resources are being utilized at full capacity. D) the prices level increases with additional production.

A) many firms are likely to have excess capacity.

If interest rates increase to a very high level, people will most likely hold A) more money in savings accounts and less cash. B) less money in savings accounts and less cash. C) less money in savings accounts and more cash. D) more money in savings accounts and more cash.

A) more money in savings accounts and less cash.

The measured unemployment rate does not fall as much as one might expect when output increases because, as the economy expands, A) more people enter the labor force. B) firms want to hire additional workers. C) more people find jobs. D) more people leave the labor force.

A) more people enter the labor force.

If interest rates are positive, one dollar today is worth A) more than a dollar a year from now. B) less than a dollar a year from now. C) the same as a dollar a year from now.

A) more than a dollar a year from now.

As the interest rate falls, people hold ________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has ________. A) more; fallen B) less; fallen C) less; risen D) more; risen

A) more; fallen

The path of consumption over a lifetime is likely to be ________ the path of income. A) much more stable than B) much less stable than C) about the same as D) completely unrelated to

A) much more stable than

Convergence theory suggests that gaps in ________ tend to close over time. A) national income B) population levels C) unemployment rates D) inflation rates

A) national income

The Lucas supply function, in combination with the assumption that expectations are rational, implies that A) neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. B) an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output. C) both anticipated monetary and fiscal policy changes will affect real output. D) an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output.

A) neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output.

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called A) new Keynesian economics. B) supply-side economics. C) monetarism. D) real business-cycle economics

A) new Keynesian economics.

If the equation for the quantity theory of money is looked on as a demand-for-money equation, then the demand for money depends on A) nominal income but not on the interest rate. B) nominal income and the interest rate. C) real income but not on the interest rate. D) real income and the interest rate.

A) nominal income but not on the interest rate.

The treasury bill rate is the interest rate paid A) on government securities that mature in less than a year. B) on government securities that mature in 5 years. C) on government securities that mature in 10 years. D) on government securities that mature in 30 years.

A) on government securities that mature in less than a year.

A problem with comparing macroeconomic models is that A) people may change how they react when economic policies are changed. B) macroeconomic models do not predict the same outcomes from policies. C) macroeconomic models cannot be expressed in mathematical terms. D) macroeconomic models must meet government standards for uniformity.

A) people may change how they react when economic policies are changed.

The relation between growth, as measured in ________, is an inverted U. A) per capita income and pollution B) income and expenditure C) saving and investment D) human capital and physical capital

A) per capita income and pollution

According to the Lucas supply function, the economy will produce more output when A) prices are unexpectedly higher than when prices are at their expected level. B) wages are below the expected level. C) prices are unexpectedly lower than when prices are at their expected level. D) prices are exactly equal to the expected level.

A) prices are unexpectedly higher than when prices are at their expected level.

Minimum wage laws contribute to a higher unemployment rate by A) raising wages above the market clearing level in some labor markets. B) pushing wages below the market clearing level in some labor markets. C) raising wages above the market clearing level in all labor markets. D) pushing wages below the market clearing level in all labor markets.

A) raising wages above the market clearing level in some labor markets.

Increasing the efficiency of various employment agencies to find better matches for those looking for jobs will A) reduce the natural rate of unemployment. B) reduce structural unemployment. C) reduce cyclical unemployment. D) not affect frictional unemployment.

A) reduce the natural rate of unemployment.

Workers in the textile industry are laid off during a recession because they are unwilling to accept a wage cut, unless they know that workers in other industries are receiving similar cuts. This example is consistent with the A) relative-wage explanation of unemployment. B) explicit contract explanation of unemployment. C) social contract explanation of unemployment. D) efficiency wage explanation of unemployment.

A) relative-wage explanation of unemployment.

During a recession, unemployment ________, tax revenue ________, and the budget deficit ________. A) rises; falls; rises B) rises; rises; falls C) falls; rises; rises D) falls; falls; rises

A) rises; falls; rises

Generally speaking, wealth A) starts out negative, turns positive, then approaches zero near the end of life. B) starts out positive, turns negative, then turns positive again near the end of life. C) starts out zero, turns positive, then turns negative near the end of life. D) starts out negative, approaches zero, then turns negative again near the end of life.

A) starts out negative, turns positive, then approaches zero near the end of life.

M1 is a A) stock variable. B) flow variable. C) near money. D) commodity money. Answer: A

A) stock variable.

According to classical economists, the only types of unemployment that exist in an economy are A) structural and frictional unemployment. B) cyclical and frictional. C) seasonal and cyclical. D) frictional and seasonal.

A) structural and frictional unemployment.

As growth progresses and countries become richer, pollution A) tends to fall. B) rises exponentially. C) rarely changes. D) levels double.

A) tends to fall.

The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is A) the aggregate supply curve. B) the aggregate production function. C) the production possibilities frontier. D) the aggregate demand curve.

A) the aggregate supply curve.

The MPC is A) the change in consumption divided by the change in income. B) consumption divided by income. C) the change in consumption divided by the change in saving. D) the change in saving divided by the change in income.

A) the change in consumption divided by the change in income.

The MPS is A) the change in saving divided by the change in income. B) 1 + MPC C) income divided by saving. D) total saving divided by total income.

A) the change in saving divided by the change in income.

According to monetarists A) the economy is relatively stable. B) economic policy is effective in increasing output. C) the economy is very unstable. D) government spending is the main source of inflation.

A) the economy is relatively stable.

If aggregate demand increases and expectations regarding inflation remain constant A) the economy moves along the short-run Phillips curve. B) the short-run Phillips curve shifts to the right. C) the short-run Phillips curve shifts to the left. D) the long-run Phillips curve shifts to the right.

A) the economy moves along the short-run Phillips curve.

The implicit assumption behind the Economic Recovery Tax Act of 1981, which cut the individual income tax rate by 25% over three years, was that A) the economy was on the negatively sloped portion of the Laffer curve. B) the economy was on the positively sloped portion of the Laffer curve. C) tax rate reductions will stimulate demand in the economy and move the economy to full employment. D) tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing.

A) the economy was on the negatively sloped portion of the Laffer curve.

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place, the economy began to expand. These critics, though, argue that the expansion did not result from the supply-side policies, but rather from A) the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. B) the self-correcting nature of the economy. C) the increases in government spending that occurred at the same time the tax cuts became effective. D) a very large increase in the demand for U.S. exports at the same time that U.S. imports fell dramatically.

A) the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective.

What determines tax revenues? A) the income tax rate B) the rate of interest C) the money supply in the economy D) the rate of inflation

A) the income tax rate

Any test of the rational expectations hypothesis must show that expectations are formed rationally and A) the model being used is the true model. B) the velocity of money is constant. C) there are no price surprises. D) all policy changes are anticipated.

A) the model being used is the true model.

The problem with the traditional macroeconomic treatment of expectations of inflation is that A) the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people. B) the model assumes that individuals will merely guess at what the inflation rate will be. C) in the model people always assume that inflation will be zero. D) the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

A) the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people.

Monetarists argue that ________ should grow at a rate equal to the average growth of real output. A) the money supply B) per-capita nominal GDP C) the velocity of money D) the personal income tax rate

A) the money supply

The velocity of money is A) the number of times a dollar bill exchanges hands in a year. B) the ratio of deposits to money supply. C) the number of times the Fed increases money supply in a year. D) the relationship between money supply and money demand.

A) the number of times a dollar bill exchanges hands in a year.

Mickey got a raise from $14 an hour to $20 an hour. As a result of the wage increase, Mickey desires to work more hours and take less hours of leisure. For Mickey A) the substitution effect dominates the income effect. B) the income effect dominates the substitution effect. C) the substitution effect must equal the income effect. D) the substitution effect must be zero.

A) the substitution effect dominates the income effect.

Currency debasement occurs when A) the value of money falls as a result of a rapid increase in its supply. B) the government requires that a certain form of money must be accepted in settlement of debts. C) items are designated as money that are intrinsically worthless. D) items are used as money that also have intrinsic value in some other use.

A) the value of money falls as a result of a rapid increase in its supply.

The opportunity cost of leisure will rise if A) the wage rate increases. B) the wage rate decreases. C) nonlabor income increases. D) nonlabor income decreases.

A) the wage rate increases.

The new classical theoretical critique of the existing macroeconomic models is based on A) the way people form their expectations. B) the nature of the tradeoff between inflation and growth. C) wages and labor market equilibrium. D) the link between the money market and the goods market.

A) the way people form their expectations.

New classical macroeconomics developed from the A) theoretical and empirical critiques of traditional economics. B) discrepancies between classical theory and the Great Depression. C) global transition from agrarian to industrial economies. D) conversion form closed to open economies.

A) theoretical and empirical critiques of traditional economics.

Which of the following is considered a liability to a bank? A) time deposits B) reserves C) the bank's loans D) the bank's buildings and equipment

A) time deposits

Suppose the wage rate in the labor market is $20 and the demand for labor increases. If wages are sticky A) unemployment decreases. B) unemployment increases. C) unemployment stays the same. D) wages decrease to eliminate the surplus.

A) unemployment decreases.

Diane lost her job and immediately started looking for another job. As a result the A) unemployment rate increases. B) labor force increases. C) labor force decreases. D) unemployment rate remains constant.

A) unemployment rate increases.

If input prices changed at exactly the same rate as output prices, the aggregate supply curve would be A) vertical. B) upward sloping. C) horizontal. D) downward sloping.

A) vertical.

The Federal Reserve's policy to "lean against the wind" means that A) when output is high, the Fed sets a high interest rate. B) when price levels are high, the Fed sets a low interest rate. C) when output is low, the Fed sets a high interest rate. D) when price levels are low, the Fed sets a high interest rate.

A) when output is high, the Fed sets a high interest rate.

Assuming no government or foreign sector, the formula for the multiplier is A) 1/MPC. B) 1/MPS. C) 1/(1 + MPC). D) 1 - MPC.

B) 1/MPS.

The formula for the government spending multiplier is A) 1/(1 + MPC). B) 1/MPS. C) 1/MPC. D) 1/(1 + MPS).

B) 1/MPS.

The Federal Reserve was created in A) 1893. B) 1913. C) 1921. D) 1933.

B) 1913.

If the Fed has a strong preference for stable prices relative to output, the ________ curve is relatively ________. A) AD; steep B) AD; flat C) AS; steep D) AS; flat

B) AD; flat

In a binding situation, the ________ curve is ________. A) AD; horizontal B) AD; vertical C) AS; horizontal D) AS; vertical

B) AD; vertical

The software industry depends on highly trained workers, who are abundantly available in Country A. The heavy equipment industry depends on the availability of a large stock of physical capital with which Country B is well endowed. According to Heckscher-Ohlin theorem A) Country A should export heavy equipment. B) Country B should import software. C) Country B should import heavy equipment. D) Country A should import software.

B) Country B should import software.

Dollar Bank is currently loaned up. If the required reserve ratio is lowered A) Dollar Bank's net worth will increase. B) Dollar Bank will have excess reserves that it can lend out. C) Dollar Bank will still be loaned up because it did not receive any additional deposits. D) Dollar Bank's actual reserves will increase, but it will still be loaned up.

B) Dollar Bank will have excess reserves that it can lend out.

What sequence of events results from a decrease in aggregate demand? A) The price level falls, inventories decline, firms respond by increasing output and employment. B) The price level falls, inventories increase, firms respond by reducing output and employment. C) The price level rises, inventories decline, firms respond by increasing output and employment. D) The price level rises, inventories increase, firms respond by increasing output and employment.

B) The price level falls, inventories increase, firms respond by reducing output and employment.

Which of the following is a correct sequence of events during a recession? A) Unemployment falls, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises. B) Unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises. C) Unemployment rises, income falls, tax revenue rises, unemployment benefits fall, and the budget deficit falls. D) Unemployment rises, income rises, tax revenue rises, unemployment benefits rise, and the budget deficit rises.

B) Unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises.

An example of an acquired comparative advantage is A) the United States producing more agricultural products than other countries because land is more abundant in the United States than in other countries. B) United States consumers buying television sets produced in Japan because Japanese companies have a reputation for producing a higher-quality TV than those produced in the United States. C) United States companies selling to other countries chemical products that cannot be sold in the United States. D) the United States purchasing coconuts from other countries, because they cannot be produced in the United States.

B) United States consumers buying television sets produced in Japan because Japanese companies have a reputation for producing a higher-quality TV than those produced in the United States.

Which of the following shifts the short-run aggregate supply curve? A) a change in the price level B) a change in the price of oil C) a change in short-run aggregate demand D) all of the above

B) a change in the price of oil

When one country can produce a product at a lower cost in terms of other goods, that country is said to have A) an absolute advantage. B) a comparative advantage. C) a productive advantage. D) an unfair advantage.

B) a comparative advantage.

Which of the following will most likely cause an increase in the quantity of money demanded? A) a decrease in nominal income B) a decrease in the interest rate C) an increase in nominal income D) an increase in the interest rate

B) a decrease in the interest rate

If the Fed sells government securities, then there is A) an increase in the supply of money. B) a decrease in the supply of money. C) a decrease in the discount rate. D) an increase in the required reserve ratio.

B) a decrease in the supply of money.

Which of the following may shift the labor supply curve? A) an increase in worker productivity B) a decrease in the value people place on their time C) an increase in the price of the output of the firm D) an increase in the corporate tax rate

B) a decrease in the value people place on their time

A bond is A) a share of ownership in a company. B) a document that formally promises to repay a loan. C) a promise to pay a dividend. D) a non-contingent payment.

B) a document that formally promises to repay a loan.

A checking deposit in a bank is considered ________ of that bank. A) an asset B) a liability C) net worth D) capital

B) a liability

An unexpected decrease in nonlabor income will have ________ effect on a household's consumption. A) an uncertain B) a negative C) a positive D) no

B) a negative

A tariff is A) a limit on the quantity of a good that can be imported into a country. B) a tax on imports. C) a government payment made to domestic firms to encourage exports. D) a payment made by the government to producers of the product.

B) a tax on imports.

Initially trade between the United States and Canada is balanced. Then, if a change in the exchange rate reduces the U.S. dollar price of Canadian goods, ceteris paribus, we would expect A) a trade surplus in the United States. B) a trade surplus in Canada. C) a trade deficit in Canada. D) a trade deficit in both countries.

B) a trade surplus in Canada.

To decrease the price level the government could A) adopt policies that discourage immigration and increase government spending. B) adopt policies that encourage immigration and decrease government spending. C) adopt policies that encourage technological advancement and increase government spending. D) adopt policies that discourage technological advancement and decrease government spending.

B) adopt policies that encourage immigration and decrease government spending.

The ________ function is the mathematical representation of the technological relationship between national output and inputs. A) consumption B) aggregate production C) saving D) net export

B) aggregate production

The economy experiences both inflation and unemployment when A) aggregate demand decreases and aggregate supply increases. B) aggregate supply decreases and aggregate demand remains unchanged. C) aggregate demand decreases and aggregate supply remains unchanged. D) aggregate demand increases and aggregate supply decreases.

B) aggregate supply decreases and aggregate demand remains unchanged.

The voting members of the Federal Open Market Committee are A) all of the members of the Board of Governors and all of the presidents of the 12 Federal Reserve banks. B) all of the members of the Board of Governors and five of the presidents of the 12 Federal Reserve banks. C) the presidents of the 12 Federal Reserve banks and three members of the Board of Governors. D) only the members of the Board of Governors.

B) all of the members of the Board of Governors and five of the presidents of the 12 Federal Reserve banks.

Each point on the IS curve represents ________ in the goods market for the given interest rate. A) maximum investment B) an equilibrium point C) a positive relationship between the price level and aggregate output D) minimum pricing

B) an equilibrium point

The time it takes the Fed or Congress to change economic policy is A) a recognition lag. B) an implementation lag. C) a response lag. D) none of the above.

B) an implementation lag.

Which of the following will most likely cause a decrease in the quantity of money demanded? A) an increase in the price level B) an increase in the interest rate C) an increase in nominal income D) a decrease in the interest rate

B) an increase in the interest rate

An increase in aggregate demand when the economy is operating at high levels of output is likely to result in A) a large increase in both output and the overall price level. B) an increase in the overall price level but little or no increase in output. C) an increase in output but little or no increase in the overall price level. D) little or no increase in either output or the overall price level.

B) an increase in the overall price level but little or no increase in output.

The phrase that was coined by John Maynard Keynes to describe the feelings of investors was the ________ of entrepreneurs. A) optimism B) animal spirits C) pessimism D) karma

B) animal spirits

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways. A) any announced policy change B) any unanticipated policy change C) only unanticipated fiscal policy changes D) only unanticipated monetary policy changes

B) any unanticipated policy change

Money is A) the same as income. B) anything that is generally accepted as a medium of exchange. C) the value of all coins and currency in circulation at any time. D) backed by gold in Fort Knox.

B) anything that is generally accepted as a medium of exchange.

Because Congress decides on the federal government's budget during the year prior to when it will take effect, the tax laws and spending programs embodied in the budget ________ once they are in place. Because of this, the implementation lag for fiscal policy is ________. A) are easy to change; often quite long B) are hard to change; often quite long C) are easy to change; usually very short D) are hard to change; usually very short

B) are hard to change; often quite long

When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as A) check kiting. B) check clearing. C) check floating. D) check balancing.

B) check clearing.

An oil price increase would A) increase aggregate demand. B) decrease short-run aggregate supply. C) decrease aggregate demand. D) increase short-run aggregate supply.

B) decrease short-run aggregate supply.

The Economic Recovery Tax Act of 1981 allowed firms to depreciate their capital at a very rapid rate for tax purposes. This A) increased the tax liability of firms and discouraged them from investing. B) decreased tax liability and encouraged investment. C) increased the tax liability of firms and encouraged them to invest. D) decreased tax liability and discouraged investment.

B) decreased tax liability and encouraged investment.

As the tax rate increases, the government spending multiplier A) increases. B) decreases. C) does not change. D) could either increase or decrease depending on the value of the MPC. Answer: B

B) decreases.

A commercial bank lists A) loans as liabilities. B) deposits as liabilities. C) required reserves as liabilities. D) excess reserves as liabilities.

B) deposits as liabilities.

It is ________ to empirically test alternative macroeconomic models against one another ________ macroeconomic models differ in ways that are hard to standardize. A) pointless; because B) difficult; because C) relatively easy; even though D) impossible; because

B) difficult; because

If the U.S. Treasury is forced to sell bills and bonds to foreigners to finance deficits, this may ________ the price of bonds and ________ the interest rates on the bonds. A) drive down; drive down B) drive down; drive up C) drive up; drive down D) drive up; drive up

B) drive down; drive up

If the U.S. Treasury is forced to sell bills and bonds to the U.S. public to finance deficits, this may ________ the price of bonds and ________ the interest rates on the bonds. A) drive down; drive down B) drive down; drive up C) drive up; drive down D) drive up; drive up

B) drive down; drive up

Empirical data suggest that during recessions, individuals reduce more of their consumption of A) nondurable goods. B) durable goods. C) services. D) necessities.

B) durable goods.

If the Fed buys U.S. Treasury bills and bonds to finance deficits, this means that the government is financing the deficit by printing money, which will eventually lead to A) excess aggregate supply. B) excess aggregate demand. C) deflation. D) an appreciation of the dollar.

B) excess aggregate demand.

If discouraged workers were counted as unemployed, then as output increased the unemployment rate would A) not change at all. B) fall by more than if discouraged workers are not counted as unemployed. C) fall by less than if discouraged workers are not counted as unemployed. D) increase by less than if discouraged workers are not counted as unemployed.

B) fall by more than if discouraged workers are not counted as unemployed.

Assume that the substitution effect dominates the income effect. When the government raises tax rates, after-tax real wage rates A) fall, consumption decreases, and labor supply increases. B) fall, consumption decreases, and labor supply decreases. C) rise, consumption increases, and labor supply increases. D) fall, consumption increases, and labor supply decreases.

B) fall, consumption decreases, and labor supply decreases.

Falling stock prices decrease investment because A) the falling prices decrease firm profits and makes investment out of retained earnings harder. B) firms can raise less money per share of stock sold. C) falling stock prices guarantee a decreased level of retained earnings. D) interest rates are lower.

B) firms can raise less money per share of stock sold.

An increase in aggregate demand when the economy is operating at ________ is likely to result in an increase in the overall price level and ________ in output. A) high levels of output; a large increase B) high levels of output; little or no increase C) low levels of output; a decrease D) low levels of output; no change

B) high levels of output; little or no increase

Other things equal, ________ interest rates increase the government deficit because of ________ government interest payments. A) high; lower B) high; higher C) low; lower D) low; higher

B) high; higher

The ________ lag for monetary policy tends to be much shorter than for fiscal policy because only monetary policy requires rather immediate changes in open market operations. A) recognition B) implementation C) response D) reorganization

B) implementation

Traveler's checks are A) not money. B) included in M1 and M2. C) not included in M2. D) not included in M1.

B) included in M1 and M2.

Teddy transfers $175 from his money market fund to his checking account. This transaction will A) decrease M2 and increase M1. B) increase M1, but leave M2 unchanged. C) decrease M1 and increase M2. D) decrease both M1 and M2.

B) increase M1, but leave M2 unchanged.

If planned injections exceed leakages, output will A) decrease. B) increase. C) remain constant. D) either increase or decrease.

B) increase.

During recessions, government spending usually A) decreases because unemployment payments decrease. B) increases because unemployment payments increase. C) decrease because unemployment payments increase. D) increases because unemployment payments decrease.

B) increases because unemployment payments increase.

Other things equal, an increase in the Z factors ________ the equilibrium interest rate and ________ equilibrium output. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

B) increases; decreases

The two channels through which monetary policy can influence behavior in the goods market are A) investment and government spending. B) investment and consumption. C) government spending and consumption. D) taxation and investment.

B) investment and consumption.

If planned investment is perfectly responsive to changes in the interest rate, the planned investment schedule A) has a negative slope. B) is horizontal. C) is vertical. D) has a positive slope.

B) is horizontal.

M1 A) is the sum of currency plus travelers checks. B) is the narrowest definition of the money supply. C) includes small time deposits. D) includes credit cards.

B) is the narrowest definition of the money supply.

If the income effect is equal to the substitution effect, the labor supply curve A) is horizontal. B) is vertical. C) has a negative slope. D) has a positive slope.

B) is vertical.

A weakness in the Club of Rome's study entitled The Limits to Growth is that A) it assumed the rate of population growth would slow. B) it did not account for technological change. C) it assumed a constant demand for products. D) it assumed a declining investment rate.

B) it did not account for technological change.

The implementation lag for fiscal policy is longer than for monetary policy because A) it takes longer for the Fed to act than Congress. B) it takes longer for Congress to act than the Fed. C) fiscal policy changes more quickly affect behavior than monetary policy changes. D) monetary policy changes more quickly affect behavior than than fiscal policy changes.

B) it takes longer for Congress to act than the Fed.

Changes in the ________ market affect the shape of the short run aggregate supply curve. A) money B) labor C) goods D) financial

B) labor

A new policy is implemented that guarantees every adult an annual income of $10,000 whether they work or not. This will most likely shift the A) labor demand curve to the right. B) labor supply curve to the left. C) labor supply curve to the right. D) labor demand curve to the left.

B) labor supply curve to the left.

According to the life-cycle theory of consumption, people tend to consume ________ they earn during their main working years. A) more than B) less than C) the same as D) an amount unrelated to what

B) less than

The implementation lag for fiscal policy is A) shorter than the implementation lag for monetary policy. B) longer than the implementation lag for monetary policy. C) the same length a the implementation lag for monetary policy. D) the same length as the recognition lag for fiscal policy.

B) longer than the implementation lag for monetary policy.

It is difficult to empirically test alternative macroeconomic models against one another because A) macroeconomic models do not predict the same outcomes from policies. B) macroeconomic models differ in ways that are hard to standardize for. C) macroeconomic models cannot be expressed in mathematical terms. D) macroeconomic models are always expressed in scientific terms.

B) macroeconomic models differ in ways that are hard to standardize for.

If inflation expectations change as a result of an expansionary fiscal policy, this causes A) the long-run Phillips curve to shift. B) the short-run Phillips curve to shift. C) the short-run Phillips curve to remain constant. D) a movement along the short-run Phillips curve.

B) the short-run Phillips curve to shift.

The percentage of workers whose wages are set by explicit contracts falls. This should A) make it more difficult for the labor market to reach an equilibrium after a change in the demand for labor. B) make it easier for the labor market to reach an equilibrium after a change in the demand for labor. C) have no impact on the movement of the labor market toward equilibrium after a change in the demand for labor. D) cause the labor market to always be at an equilibrium, even if there is a change in the demand for labor.

B) make it easier for the labor market to reach an equilibrium after a change in the demand for labor.

The economic impact of automatic stabilizers during recessionary periods is to A) have no impact on the recession. B) moderate the recession. C) make the recession worse. D) increase taxes.

B) moderate the recession.

The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the A) elasticity coefficient. B) multiplier. C) automatic stabilizer. D) marginal propensity of the autonomous variable.

B) multiplier.

Close substitutes for transactions money are known as A) fiat monies. B) near monies. C) commodity monies. D) token monies.

B) near monies.

The demand for money and the interest rate are A) positively related. B) negatively related. C) sometimes positively related and other times negatively related, depending on the condition of the economy. D) not related.

B) negatively related.

The price of bonds and the interest rate are A) positively related. B) negatively related. C) sometimes positively related and other times negatively related, depending on the bond payments. D) not related.

B) negatively related.

The aggregate demand curve would shift to the left if A) government spending were increased. B) net taxes were increased. C) the money supply were increased. D) the cost of energy were to decrease.

B) net taxes were increased.

Over time, spending on ________ is "smoother" than spending on ________. A) durable goods; services B) nondurable goods; durable goods C) services; nondurable goods D) durable goods; service

B) nondurable goods; durable goods

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been A) on the very steep part of the short-run aggregate supply curve. B) on the very flat part of the short-run aggregate supply curve. C) on the very steep part of the short-run aggregate demand curve. D) on the very flat part of the short-run aggregate demand curve.

B) on the very flat part of the short-run aggregate supply curve.

Expanding the production possibilities frontier occurs as a result of A) higher wages. B) output growth. C) a changing allocation of existing resources. D) increased demand.

B) output growth.

According to the Lucas supply function, the amount of output produced is not related to the price level if A) people's expectations of the price level are higher than the actual price level. B) people's expectations of the price level are on target. C) people's expectations of the price level are lower than the actual price level. D) people's expectations of the price level are either higher or lower than the actual price level.

B) people's expectations of the price level are on target.

Velocity will be constant if the demand for money with respect to the interest rate is A) unitary elastic. B) perfectly inelastic. C) perfectly elastic. D) elastic, but not perfectly elastic.

B) perfectly inelastic.

The average level of one's expected future income stream is A) disposable income. B) permanent income. C) gross income. D) taxable income.

B) permanent income.

Because the Fed's current tool for changing the interest rate is to change the ________, once the decision has been made to make the change, ________. A) rate it pays on bank reserves; the implementation lag is usually very long B) rate it pays on bank reserves; there is in effect no implementation lag C) required reserve rate; the implementation lag is usually very long D) required reserve rate; there is in effect no implementation lag

B) rate it pays on bank reserves; there is in effect no implementation lag

According to the Lucas supply function, if the expected price level is smaller than the actual price level A) real output decreases. B) real output increases. C) real output must be at a maximum. D) real output must be at a minimum.

B) real output increases.

According to new classical economists, if the Fed increases the money supply after it announces it, output ________ and the price level ________. A) increases; remains constant B) remains constant; increases C) remains constant; remains constant D) increases; increase

B) remains constant; increases

If the capital stock ________ while the supply of labor ________, it is likely that the productivity of labor will fall. A) increases; decreases B) remains fixed; increases C) increases; increases D) increases; remains fixed

B) remains fixed; increases

As the unemployment rate decreases in response to the economy moving toward capacity output, the aggregate price level A) is stable. B) rises. C) falls at an increasing rate. D) falls at a declining rate.

B) rises.

Assuming there is no foreign trade in the economy, equilibrium is achieved when government purchases equal A) saving minus net taxes minus consumption. B) saving plus net taxes minus investment. C) net taxes plus investment minus saving. D) net taxes minus investment minus saving.

B) saving plus net taxes minus investment.

If inflationary expectations decrease, the Phillips curve will A) shift to the right. B) shift to the left. C) become vertical. D) become upward sloping.

B) shift to the left.

When 100 people who were previously looking for jobs stop looking for jobs, the A) unemployment rate increases. B) size of the labor force decreases. C) labor-force participation rate does not change. D) unemployment rate does not change.

B) size of the labor force decreases.

If the economy is on the steep part of the AS curve, the multiplier will be A) larger than it would be if the economy were on the flat portion of the AS curve. B) smaller than it would be if the economy were on the flat portion of the AS curve. C) constant regardless of where the economy is on the AS curve. D) infinite, as compared to zero if the economy is on the flat portion of the AS curve.

B) smaller than it would be if the economy were on the flat portion of the AS curve.

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to A) encourage firms to hire more workers. B) stimulate capital investment. C) encourage firms to use fewer nonrenewable resources. D) reduce corporate profits.

B) stimulate capital investment.

When you keep your savings in a saving account, you are using money as a(n) A) investment good. B) store of value. C) medium of exchange. D) unit of account.

B) store of value.

When analyzing the effects of government spending, net taxes, and the Z factors, what primarily matters is the shape of A) the AD curve. B) the AS curve. C) both the AD curve and the AS curve. D) neither the AD curve nor the AS curve.

B) the AS curve.

The multiplier is the ratio of the change in ________ to a change in ________. A) the MPC; the MPS B) the equilibrium level of output; some autonomous variable C) the level of saving; the level of consumption

B) the equilibrium level of output; some autonomous variable

Which of the following types of interest rates change daily? A) the prime rate B) the federal funds rate C) the discount rate D) the corporate rate

B) the federal funds rate

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause A) the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to decrease. B) the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase. C) the interest rate to decrease, the quantity demanded of money to decrease, and the velocity of money to increase. D) the interest rate to decrease, the quantity demanded of money to increase, and the velocity of money to decrease.

B) the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase.

The United States has a comparative advantage in the production of wheat, and Haiti has a comparative advantage in the production of sugar. If both countries specialize based on the theory of comparative advantage A) only the production of wheat will increase. B) the production and consumption of both goods will increase. C) only the production of both goods will increase. D) only the consumption of both goods will increase.

B) the production and consumption of both goods will increase.

If the capital stock remains fixed while the supply of labor increases, it is likely that A) the productivity of labor will rise. B) the productivity of labor will fall. C) the productivity of labor will not change. D) output per capita will rise.

B) the productivity of labor will fall.

According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that A) the income effect of a wage change is greater than the substitution effect of a wage change. B) the substitution effect of a wage change is greater than the income effect of a wage change. C) there is no income effect when tax rates are changed. D) there is no substitution effect when tax rates are changed.

B) the substitution effect of a wage change is greater than the income effect of a wage change.

Empirical evidence with respect to the labor supply decision suggests that A) the income effect seems to dominate for most people, which means that the aggregate labor supply responds negatively to an increase in the wage rate. B) the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate. C) the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds negatively to an increase in the wage rate. D) the income effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.

B) the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.

The GDP includes A) the value of all intermediate goods and services. B) the value of all final goods and services. C) the value of both intermediate and final goods and services. D) the value of all transactions.

B) the value of all final goods and services.

If a decrease in the Z factors resulted in a very large change in the price level and a very small change in aggregate output A) then in the U.S. economy investment demand must not be sensitive to the interest rate. B) then the U.S. economy must have been on the very steep part of its short-run aggregate supply curve. C) then the U.S. economy must have been on the very flat part of its short-run aggregate supply curve. D) then the U.S. aggregate demand curve must be very steep.

B) then the U.S. economy must have been on the very steep part of its short-run aggregate supply curve.

If aggregate supply increases and aggregate demand remains unchanged A) there will be a positive relationship between the price level and the level of aggregate output. B) there will be a negative relationship between the price level and the level of aggregate output. C) there will be no systematic relationship between the price level and the level of aggregate output. D) the price level will remain unchanged, but aggregate output will decrease.

B) there will be a negative relationship between the price level and the level of aggregate output.

The federal debt is the A) same as the federal deficit. B) total amount owed to the public by the federal government. C) amount towed to the federal government by other countries. D) yearly federal tax revenues minus the yearly federal expenses.

B) total amount owed to the public by the federal government.

What is the largest expenditure source in the government's budget? A) consumption B) transfer payments C) net interest payments D) net subsidies

B) transfer payments

The rate that the least risky firms pay on bonds that they issue is the A) prime rate. B) triple-A corporate bond rate. C) commercial paper rate. D) federal funds rate.

B) triple-A corporate bond rate.

Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky A) unemployment decreases. B) unemployment increases. C) unemployment stays the same. D) wages decrease to eliminate the surplus.

B) unemployment increases.

Which of the following is assumed constant in the quantity theory of money? A) money supply B) velocity C) the price level D) output

B) velocity

The ratio of nominal GDP to the stock of money is the A) money multiplier. B) velocity of money. C) real GDP. D) GDP deflator.

B) velocity of money.

If the aggregate supply is ________, an increase in the price level does not change the unemployment rate. A) horizontal B) vertical C) positively sloped D) negatively sloped

B) vertical

The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes A) will have no effect on the actual price level. B) will have no effect on real output. C) will have no effect on the expected price level. D) will have no effect on nominal output.

B) will have no effect on real output.

The formula for the tax multiplier is A) -(MPS/MPC). B) MPS/MPC. C) -(MPC/MPS). D) -1/MPS.

C) -(MPC/MPS).

Okun's Law states that the unemployment rate decreases about A) 1 percentage point for every 1% increase in GDP. B) 3 percentage points for every 1% increase in GDP. C) 1 percentage point for every 3% increase in GDP. D) 1 percentage point for every 2% increase in GDP.

C) 1 percentage point for every 3% increase in GDP.

The Federal Reserve System consists of ________ Federal Reserve Banks. A) 8 B) 10 C) 12 D) 14

C) 12

________ shifts the Fed rule to the right. A) An increase in government spending B) A decrease in government spending C) A decrease in the price level D) An increase in the Z factors

C) A decrease in the price level

China has a comparative advantage in textiles and an absolute advantage in both textiles and radios. Japan has a comparative advantage in radios. According to this scenario A) Japan should import both radios and textiles. B) China should export both radios and textiles. C) China should export textiles and import radios. D) Japan should export textiles and import radios.

C) China should export textiles and import radios.

Which of the following is an investment in human capital? A) The city government green lights the construction of a new concert arena. B) Rayburn Tool and Die Company purchases a new die-cutting machine. C) Displaced workers return to school to update their skills. D) Thompson Temp Agency replaces its desktop computers with laptop computers.

C) Displaced workers return to school to update their skills.

Which of the following statements is false? A) If the United States imposes a tariff on Japanese car imports, the price of cars in the United States is likely to increase. B) If the United States imposes a quota on Japanese car imports, the price of cars in the United States is likely to increase. C) If Japan imposes a subsidy on car exports to the United States, the price of cars in the United States is likely to increase. D) If Japan imposes a "voluntary export restraint" on car exports to the United States, the price of cars in the United States is likely to increase.

C) If Japan imposes a subsidy on car exports to the United States, the price of cars in the United States is likely to increase.

In general, fiscal policy has a longer ________ lag than monetary policy but shorter ________ lag. A) recognition; response B) implementation; recognition C) implementation; response D) response; implementation

C) implementation; response

If the wage rate in the labor market is $17 and the productivity of workers decreases, which of the following statements is incorrect? A) The labor demand curve shifts to the left. B) If wages are flexible, there will be a decrease in wages. C) If wages are sticky, there will be a shortage in the labor market. D) If wages are sticky, there will be a surplus in the labor market.

C) If wages are sticky, there will be a shortage in the labor market.

The main advantage of using M2 instead of M1 as the measure for money is that A) M2 can be measured more accurately. B) M2 includes only instantly accessible assets. C) M2 is sometimes more stable. D) M2 varies as the interest rate varies.

C) M2 is sometimes more stable.

Which of the following is not one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another? A) The rational-expectations assumption is difficult to test. B) Macroeconomic models differ in ways that are hard to standardize for. C) Macroeconomic models cannot be expressed in mathematical terms. D) The amount of data available is fairly small.

C) Macroeconomic models cannot be expressed in mathematical terms.

In 2000, the United Nations unanimously adopted the ________, a set of quantifiable, time-based targets for developing countries to meet. A) 21st Century Equity Initiative B) Global Warming Reduction Act C) Millennium Development Goals D) Carbon Footprint Eradication Measure

C) Millennium Development Goals

The velocity of money is equal to A) P × M / Y. B) Y × P × M. C) P × Y / M. D) P / M × Y.

C) P × Y / M.

Which of the following statements is true? A) Production and sales will fluctuate by the same amount and in the same direction over time. B) Production will not fluctuate over time, but a firm's sales will fluctuate over time. C) Production will fluctuate somewhat over time, but not as much as sales fluctuates over time. D) Production and sales will both fluctuate by the same amount over time, but in different directions.

C) Production will fluctuate somewhat over time, but not as much as sales fluctuates over time.

The U.S. tariff law that set off an international trade war in the 1930s was the A) Taft-Hartley tariff. B) Bentsen-Gephardt tariff. C) Smoot-Hawley tariff. D) Landrum-Griffin tariff.

C) Smoot-Hawley tariff.

Which of the following relationships is correct? A) Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) - Production + Sales B) Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) - Production - Sales C) Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production - Sales D) Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production + Sales

C) Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production - Sales

Which of the following is false? A) An import quota does not generate government revenue. B) Tariffs on imports generate government revenue as long as the domestic price is larger than the world price plus the tariff. C) Tariffs on imports do not generate government revenue if the domestic price is larger than the world price plus the tariff. D) Tariffs on imports generate revenue for the government.

C) Tariffs on imports do not generate government revenue if the domestic price is larger than the world price plus the tariff.

When Argentina experiences a period of high inflation and Argentineans lose confidence in their peso as a store of value, which of the following would be least likely to occur? A) The demand for pesos would decrease. B) The buying power of the peso would decrease. C) The value of foreign currencies would depreciate relative to the peso. D) Argentineans would use a different currency as a medium of exchange.

C) The value of foreign currencies would depreciate relative to the peso.

If the exchange rate between the United States and Mexico changes from $1 = 100 pesos to $1 = 5 pesos, ceteris paribus A) U.S. imports from Mexico increase. B) Mexican exports to the United States increase. C) U.S. exports to Mexico increase. D) the trade deficit in the United States increases.

C) U.S. exports to Mexico increase.

When the government sector is included in the income-expenditure model, the equation for aggregate income is A) Y = C + S - T. B) Y = C + I. C) Y = C + I + G. D) Y = C + S + I.

C) Y = C + I + G.

Which of the following causes an individual to increase his/her supply of labor? A) a decrease in the real wage B) an increase in his/her wealth C) a decrease in nonlabor income D) Both A and C are correct

C) a decrease in nonlabor income

The income effect of a wage rate increase should lead to A) an increase in the quantity of labor supplied and a decrease in leisure. B) an increase in the quantity of labor supplied and an increase in leisure. C) a decrease in quantity of labor supplied and an increase in leisure. D) a decrease in the quantity of labor supplied and a decrease in leisure.

C) a decrease in quantity of labor supplied and an increase in leisure.

Demand-pull inflation can be the result of A) a decrease in government spending. B) an increase in net taxes. C) a decrease in the Z factors. D) all of the above.

C) a decrease in the Z factors.

The liquidity property of money is the property that makes money A) a good medium of exchange and a good unit of account. B) a good store of value and a good unit of account. C) a good medium of exchange and a good store of value. D) a good store of value and a good standard of deferred payment.

C) a good medium of exchange and a good store of value.

The time it takes for a new economic policy to affect behavior in the economy is A) a recognition lag. B) an implementation lag. C) a response lag. D) none of the above

C) a response lag.

Among the propositions of the Keynesian school of thought is A) economic policies are ineffective. B) aggregate supply management is the key to a stable economy. C) aggregate demand determines equilibrium output. D) rational expectations.

C) aggregate demand determines equilibrium output.

The mathematical representation of the technological relationship between inputs and national output is known as the A) aggregate supply function. B) production possibilities frontier. C) aggregate production function. D) input-output table.

C) aggregate production function.

The functioning of the labor market primarily affects the shape of the A) aggregate demand curve. B) money demand curve. C) aggregate supply curve. D) planned investment curve.

C) aggregate supply curve.

The quantity of output supplied at different price levels is represented by the A) production function. B) aggregate demand curve. C) aggregate supply curve. D) aggregate expenditures curve.

C) aggregate supply curve.

Embodied technical change results in A) an increase in physical capital. B) disembodied technical change. C) an improvement in the quality of capital. D) a decrease in labor productivity.

C) an improvement in the quality of capital.

An increase in aggregate demand when the economy is operating at full capacity is likely to result in A) an increase in both output and the overall price level. B) an increase in output but no increase in the overall price level. C) an increase in the overall price level but no increase in output. D) no increase in either output or the overall price level.

C) an increase in the overall price level but no increase in output.

The Standard and Poor's 500 index is A) an index of a basket of consumer good purchased by the typical consumer. B) an index based on the stock prices of 30 actively traded large companies. C) an index based on the 500 largest firms traded in the three biggest stock markets. D) an index of 5,000 companies traded on the national association of securities dealers automatic quotation system.

C) an index based on the 500 largest firms traded in the three biggest stock markets.

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public, the actual price level A) will be impacted more than the expected price level. B) will be impacted less than the expected price level. C) and the expected price level will be impacted in the same way. D) will be impacted but the expected price level will not.

C) and the expected price level will be impacted in the same way.

The Lucas supply function, in combination with the assumption that expectations are rational, implies that A) anticipated policy changes have a significant effect on real output. B) unanticipated policy changes have no effect on real output. C) anticipated policy changes have no effect on real output. D) the effect that policy changes have on real output is the same, regardless of whether those changes are anticipated or not.

C) anticipated policy changes have no effect on real output.

What definition of unemployment would you expect classical economists to use? A) anyone who is actively seeking work B) anyone who is willing to work if the market wage increases C) anyone who is willing to work at the current market wage, but has not yet been able to find employment D) anyone who is currently not working

C) anyone who is willing to work at the current market wage, but has not yet been able to find employment

Traditional macroeconomic models assume that people's expectations of inflation A) are determined by looking at all the relevant information and forecasting the future inflation rate. B) will be zero in the future. C) are set by assuming a continuation of present inflation. D) are set by merely guessing what the future inflation rate will be.

C) are set by assuming a continuation of present inflation.

Every president who has held office since the General Agreement on Tariffs and Trade was signed has A) argued for free-trade policies, but only Eisenhower and Reagan successfully resisted all calls for protection from various sectors of the economy. B) argued that certain domestic industries deserve protection, yet each one has been reluctant to use his powers to protect individual sectors of the economy. C) argued for free-trade policies, yet each one has used his powers to protect various sectors of the economy. D) argued for free-trade policies, but only Kennedy and Carter successfully resisted all calls for protection from various sectors of the economy.

C) argued for free-trade policies, yet each one has used his powers to protect various sectors of the economy.

Which of the following activities is one of the responsibilities of the Federal Reserve? A) issuing new bonds to finance the federal budget deficit B) loaning money to other countries that are friendly to the United States C) assisting banks that are in a difficult financial position D) auditing the various agencies and departments of the federal government

C) assisting banks that are in a difficult financial position

If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ________ change in the price level and a ________ change in output. A) small; small B) big; big C) big; small D) small; big

C) big; small

The implementation lag for fiscal policy tends to be much longer than for monetary policy because fiscal policy requires A) changes in required reserves. B) changes in open-market operations. C) changes in congressional-approved spending and tax programs. D) changes in exports and imports.

C) changes in congressional-approved spending and tax programs.

When the Fed slows the rate of growth of the money supply to slow down the economy, the unemployment type that will be directly affected is the A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural rate of unemployment.

C) cyclical unemployment.

A movement down the aggregate supply curve is caused by a(n) A) decrease in aggregate supply. B) increase in aggregate supply. C) decrease in the price level. D) increase in the price level.

C) decrease in the price level.

The Fed increases money supply. In this case, the time lag problem of monetary policy may A) increase the velocity of money in the short run. B) increase real GDP in the short run. C) decrease the velocity of money in the short run. D) none of the above

C) decrease the velocity of money in the short run.

A(n) ________ in inflationary expectations that causes firms to decrease their prices shifts the aggregate supply curve to the ________. A) increase; right B) increase; left C) decrease; right D) decrease; left

C) decrease; right

Other things equal, cost-push inflation results in output ________ and the price level ________. A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing

C) decreasing; increasing

A rightward shift in the aggregate demand curve generates a ________ inflation and ________ output. A) demand-pull; lower B) cost-push; higher C) demand-pull; higher D) cost-push; lower

C) demand-pull; higher

It costs a computer manufacturer $1,000 to produce a personal computer. This manufacturer sells these computers abroad for $600. This is an example of A) a negative tariff. B) export subsidy. C) dumping. D) a trade-related economy of scale.

C) dumping.

Which of the following is not a category of fiscal policy? A) government policies regarding the purchase of goods and services B) government policies regarding taxation C) government policies regarding money supply in the economy D) government policies regarding transfer payments and welfare benefits

C) government policies regarding money supply in the economy

If the income effect is greater than the substitution effect, the labor supply curve A) is horizontal. B) is vertical. C) has a negative slope. D) has a positive slope.

C) has a negative slope.

Which of the following types of expenditures is more volatile than plant and equipment investment? A) consumption of durable goods B) consumption of services C) housing investment D) consumption of nondurable goods

C) housing investment

The government reduces the corporate profits tax. As a result, corporate profits increase. This will A) have no effect on households. B) increase the nonlabor income of households, causing consumption to increase and labor supply to increase. C) increase the nonlabor income of households, causing consumption to increase and labor supply to decrease. D) increase the nonlabor income of households, causing consumption to increase and labor supply to increase or decrease depending on the relative magnitude of the income and substitution effects.

C) increase the nonlabor income of households, causing consumption to increase and labor supply to decrease.

Mike has just graduated from college and is now looking for a job, but has not yet found one. This causes the unemployment rate to ________ and the labor-force participation rate to ________. A) increase; decrease B) stay the same; stay the same C) increase; increase D) increase; stay the same

C) increase; increase

A rise in the interest rate A) decreases the opportunity cost of consuming today. B) increases the opportunity cost of consuming in the future. C) increases the opportunity cost of consuming today. D) decreases the opportunity cost of consuming in the future.

C) increases the opportunity cost of consuming today.

According to the new classical theory, economic policies are A) effective only if anticipated. B) ineffective if unanticipated. C) ineffective if anticipated. D) ineffective, whether anticipated or unanticipated.

C) ineffective if anticipated.

The Phillips curve depicts the relationship between A) output and the price level. B) aggregate demand and aggregate expenditures. C) inflation and unemployment. D) money supply and interest rates.

C) inflation and unemployment.

For the economy to be in equilibrium, government purchases plus ________ must equal saving plus ________. A) consumption; investment B) tax revenue; consumption C) investment; tax revenue D) tax revenue; investment

C) investment; tax revenue

If planned investment is perfectly unresponsive to changes in the interest rate, the planned investment schedule A) has a negative slope. B) is horizontal. C) is vertical. D) has a positive slope.

C) is vertical.

If the long-run aggregate supply curve is vertical, the multiplier effect of a change in net taxes on aggregate output in the long run A) depends on the price level. B) is one. C) is zero. D) is infinitely large.

C) is zero.

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going up because its own output price is going up, it will A) decrease its production. B) increase its production. C) keep its production level constant. D) increase expectations regarding its own output price.

C) keep its production level constant.

The property that makes money a good medium of exchange and a good store of value is the A) transactions demand for money. B) asset demand for money. C) liquidity property of money. D) unlimited supply of money. Answer: C

C) liquidity property of money.

Which of the following was one of the likely causes of the productivity problem of the 1970s? A) rapid growth in investment spending B) a reduction in government regulation C) low saving rates D) an increase in research and development spending

C) low saving rates

The aggregate demand curve shows that, ceteris paribus, at ________ price levels total quantity demanded is ________. A) higher; higher B) lower; lower C) lower; higher D) positive; negative

C) lower; higher

According to the rational expectations hypothesis, unemployment A) does not exist in the short run. B) may exist, and when it does, it stays for a long period of time. C) may exist, and if it does, it will be temporary. D) only exists in the long run.

C) may exist, and if it does, it will be temporary.

When you pay $8 for salad you ordered for lunch, you are using money as a(n) A) store of value. B) investment good. C) medium of exchange. D) unit of account.

C) medium of exchange.

Traditional treatments of macroeconomic expectations are not consistent with the assumptions of A) Keynesian policy. B) fiscal policy. C) microeconomics. D) all of the above

C) microeconomics.

Which of the following would not be counted as part of M1? A) demand deposits B) traveler's check C) money market accounts D) currency

C) money market accounts

The slope of the IS curve is ________ and the slope of the Fed rule is ________. A) positive; positive B) positive; negative C) negative; positive D) negative; negative

C) negative; positive

The velocity of money is the ratio of A) real GDP to the stock of money. B) the overall price level to the stock of money. C) nominal GDP to the stock of money. D) nominal GDP to the overall price level.

C) nominal GDP to the stock of money.

When the aggregate price level (P) is multiplied by real aggregate income (Y), the result is A) the aggregate money multiplier. B) the real aggregate price level. C) nominal income. D) aggregate money demand.

C) nominal income.

If relevant information can be obtained at no cost, people are ________ when they fail to use all available information given that there are usually ________ to making a wrong forecast. A) behaving rationally; costs B) behaving rationally; no costs C) not behaving rationally; costs D) not behaving rationally; no costs

C) not behaving rationally; costs

The Lucas supply model, in combination with the assumption that expectations are rational, leads to the conclusion that A) expansionary policies, but not contractionary policies, can have an impact on real output. B) contractionary policies, but not expansionary policies, can have an impact on real output. C) only unanticipated policy changes can have an impact on output. D) neither anticipated nor unanticipated policy changes can have an impact on output.

C) only unanticipated policy changes can have an impact on output.

Provided that firms have sufficient capital and labor to support an output increase, monetary and fiscal policy are likely to be the most effective when A) prices and inventory stocks are both high. B) output and inventory stocks are both high. C) output is low and inventory stocks are low. D) output is low and inventory stocks are high.

C) output is low and inventory stocks are low.

If the economy is operating way below capacity, an increase in aggregate demand causes a big change in the ________ and small change in ________. A) aggregate demand; aggregate supply B) aggregate supply; aggregate demand C) output; price level D) price level; output

C) output; price level

If unplanned inventory investment is positive, then A) planned investment must be zero. B) planned aggregate spending must be greater than aggregate output. C) planned aggregate spending must be less than aggregate output. D) planned aggregate spending must equal aggregate output.

C) planned aggregate spending must be less than aggregate output.

A change in inventory is equal to A) production + sales. B) sales × production. C) production - sales. D) sales - production.

C) production - sales.

The hypothesis that people know the "true model" of the economy and that they use this model to form their expectations of the future is the A) real business cycle hypothesis. B) Lucas supply function hypothesis. C) rational-expectations hypothesis. D) Laffer hypothesis.

C) rational-expectations hypothesis.

The wage rate that is adjusted for changes in the price level over time is the A) expected future wage rate. B) nominal wage rate. C) real wage rate. D) money wage rate.

C) real wage rate.

Even though explicit contracts may lead to layoffs during recessions, explicit contracts may still be efficient because such contracts A) guarantee that only the least-productive workers will be laid off. B) reduce unemployment effects. C) reduce negotiation costs. D) will equitably spread the layoffs among junior and senior workers.

C) reduce negotiation costs.

Automatic destabilizing policies would tend to A) negate inflation and stimulate expansion. B) promote the nation's exports. C) reinforce inflationary pressures and deepen recessionary conditions. D) decrease the nation's imports.

C) reinforce inflationary pressures and deepen recessionary conditions.

As the size of the MPC increases, the value of the balanced-budget multiplier A) increases. B) decreases. C) remains constant. D) could either increase or decrease.

C) remains constant.

Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, there will be a A) surplus of labor and the wage rate declines. B) shortage of labor and the wage rate increases. C) shortage of labor and the wage rate stays the same. D) surplus of labor and the wage rate increases.

C) shortage of labor and the wage rate stays the same.

Firms report that their workers are working six hours of overtime per week. The government reports that the unemployment rate is 3.5%. In this situation, the multiplier is likely to be A) negative. B) large. C) small. D) infinitely large.

C) small.

If the economy is in a recession, the full-employment deficit is ________ the actual deficit. A) larger than B) equal to C) smaller than D) equal to or larger than

C) smaller than

The Fed will raise the interest rate by the greatest amount when the economy is on the ________ part of the AS curve and there is ________. A) flat; a decrease in taxes B) flat; an increase in taxes C) steep; a decrease in taxes D) steep; an increase in taxes

C) steep; a decrease in taxes

The owners of a company are its A) bond holders. B) employees. C) stockholders. D) A and C.

C) stockholders.

Betty won $500 in a poker tournament. She deposits her $500 winnings into a money market fund so that she can use the money next year to help her pay for a trip to Las Vegas. This is an example of money serving as a(n) A) unit of account. B) medium of exchange. C) store of value. D) investment good.

C) store of value.

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate? A) the monetary schools B) the classical school C) the Keynesian school D) the rational expectation school

C) the Keynesian school

Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. If the current exchange rate is 0.8 euro to the dollar, then A) Italy will import both shoes and wine from the United States. B) the United States will import both shoes and wine from Italy. C) the United States will import shoes from Italy and Italy will import wine from the United States. D) the United States will import wine from Italy and Italy will import shoes from the United States.

C) the United States will import shoes from Italy and Italy will import wine from the United States.

Economic policies are ineffective concerning quantities of output directly when A) the aggregate supply curve is flat. B) the aggregate demand is flat. C) the aggregate supply is vertical. D) the economy is not producing at capacity.

C) the aggregate supply is vertical.

The interest rate that commercial banks charge each other for borrowing and lending reserves is called A) the commercial rate. B) the price interest rate. C) the federal funds rate. D) the discount rate.

C) the federal funds rate.

Which of the following is an example of a contractionary fiscal policy? A) the Fed buying government securities in the open market B) the federal government decreasing the marginal tax rate on incomes below $200,000 C) the federal government decreasing the amount of money spent on public health programs D) the federal government reducing pollution standards to allow firms to produce more output

C) the federal government decreasing the amount of money spent on public health programs

Which of the following is an example of an expansionary fiscal policy? A) the Fed selling government securities in the open market B) the federal government increasing the marginal tax rate on incomes above $200,000 C) the federal government increasing the amount of money spent on public health programs D) the federal government reducing pollution standards to allow firms to produce more output

C) the federal government increasing the amount of money spent on public health programs

Which of the following instruments is not used by the Federal Reserve to change the money supply? A) the discount rate B) the required reserve ratio C) the federal tax code D) open market operations

C) the federal tax code

If an individual is a debtor A) the substitution effect of an interest rate increase is zero. B) the income effect of an interest rate increase is zero. C) the income and substitution effects of an increase in the interest rate work in the same direction. D) the income and substitution effects of an increase in the interest rate work in opposite directions.

C) the income and substitution effects of an increase in the interest rate work in the same direction.

Caroline's hourly wage rate was reduced from $22 to $16. As a result of the wage decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline A) the income effect must be zero. B) the substitution effect dominates the income effect. C) the income effect dominates the substitution effect. D) the substitution effect must equal the income effect.

C) the income effect dominates the substitution effect.

Monetary policy is less effective than it was in the past because A) investment has become less sensitive to interest rate changes. B) the substitution effect of an interest rate change on consumption has increased. C) the income effect of an interest rate change on consumption has increased. D) the government deficit has decreased.

C) the income effect of an interest rate change on consumption has increased.

When trade is free, patterns of trade and trade flows result from A) the collective decisions of a few importers and exporters, as well as the governments of the countries in which they reside. B) the collective decisions of a few importers and exporters, as well as millions of private households and firms. C) the independent decisions of thousands of importers and exporters, as well as millions of private households and firms. D) the independent decisions of thousands of importers and exporters, as well as the governments of the countries in which they reside.

C) the independent decisions of thousands of importers and exporters, as well as millions of private households and firms.

The discount rate is A) the interest rate commercial banks charge each other for borrowing funds. B) the interest rate commercial banks charge their new customers. C) the interest rate the Fed charges commercial banks for borrowing funds. D) the interest rate commercial banks charge their most creditworthy customers.

C) the interest rate the Fed charges commercial banks for borrowing funds.

In the long run, the Phillips curve will be vertical at the natural rate of unemployment if A) the long-run aggregate demand curve is vertical at potential output. B) the long-run aggregate demand curve is horizontal at the natural rate of inflation. C) the long-run aggregate supply curve is vertical at potential output. D) the long-run supply curve is horizontal at the natural rate of inflation.

C) the long-run aggregate supply curve is vertical at potential output.

For economic growth to increase living standards A) society must discover ways of using available resources more efficiently. B) the choices available to consumers must increase. C) the rate of growth must exceed the rate of population increase. D) society must acquire more resources.

C) the rate of growth must exceed the rate of population increase.

The government purchases multiplier is A) the difference between the old equilibrium level of output and the new equilibrium level of output. B) the ratio of the change in government purchases to the change in the equilibrium level of output. C) the ratio of the change in the equilibrium level of output to a change in government purchases. D) the difference between the new and old levels of government purchases.

C) the ratio of the change in the equilibrium level of output to a change in government purchases.

Fiscal policy refers to A) the techniques used by a business firm to reduce its tax liability. B) the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C) the spending and taxing policies used by the government to influence the economy. D) the government's ability to regulate a firm's behavior in the financial markets.

C) the spending and taxing policies used by the government to influence the economy.

Other things equal, the unemployment rate rises if A) the demand for labor increases. B) aggregate output increases. C) the supply of labor increases. D) aggregate demand increases.

C) the supply of labor increases.

If, as a result of imperfect information, firms set their wage rates below the market clearing wage rate A) unemployment increases. B) there will be a surplus of workers. C) there will be a shortage of workers. D) there will be equilibrium in the labor market.

C) there will be a shortage of workers.

A currency that is not backed by gold, silver, or any other precious commodity equal to the face value of the money is known as A) fake money. B) weak money. C) token money. D) commodity money.

C) token money.

The major lesson of the circular flow diagram is that A) saving must always be less than investment. B) taxes must always be greater than government expenditures. C) total income in the economy must always equal total spending. D) tax receipts must be equal to transfer payments

C) total income in the economy must always equal total spending.

Aggregate output will increase if there is a(n) A) increase in saving. B) unplanned rise in inventories. C) unplanned fall in inventories. D) decrease in consumption.

C) unplanned fall in inventories.

Social contracts are ________ agreements between workers and firms that firms will not cut wages. A) formal B) written C) unspoken D) union

C) unspoken

When the economy is producing at full capacity, the aggregate supply curve becomes A) horizontal. B) downward sloping. C) vertical. D) upward sloping.

C) vertical.

According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market A) will never exist. B) will only exist in times of high inflation. C) will only be temporary. D) will be a common occurrence.

C) will only be temporary.

The unemployment rate equals A) labor force/population. B) unemployed/employed. C) (employed - unemployed)/labor force. D) (labor force - employed)/labor force.

D) (labor force - employed)/labor force.

________ shifts the Fed rule to the left. A) An increase in government spending B) A decrease in government spending C) A decrease in the price level D) An increase in the Z factors

D) An increase in the Z factors

Assume that households have positive wealth. Which of the following explains how the income effect of an interest rate increase affects consumption? A) As the interest rate increases, the opportunity cost of current consumption falls, and therefore current consumption increases. B) As the interest rate increases, permanent income increases and future consumption increases. C) As the interest rate increases, expected future income increases and future consumption increases. D) As the interest rate increases, nonlabor income increases and current consumption increases.

D) As the interest rate increases, nonlabor income increases and current consumption increases.

The Fed can influence long-term interest rates by A) influencing the current one-year rate. B) affecting people's expectations of future short-term rates. C) influencing the demand for money in the short run. D) Both A and B are correct.

D) Both A and B are correct.

After government is added to the income-expenditure model, the formula for the aggregate consumption function is A) C = a - b(Y - T). B) C = a - b(T - Y). C) C = a + b(Y + T). D) C = a + b(Y - T).

D) C = a + b(Y - T).

Which of the following statements is true? A) The long-run potential of the economy declines as output per worker falls during a recession. B) The long-run potential of the economy increases as output per worker rises during an expansion. C) The long-run potential of the economy increases as output per worker rises during an expansion, but the long-run potential of the economy doesn't change as output per worker falls during a recession. D) Changes in output per worker over the business cycle have nothing to do with the long-run potential of the economy.

D) Changes in output per worker over the business cycle have nothing to do with the long-run potential of the economy.

Country A has a comparative advantage compared to Country B in the production of shoes if A) Country A can produce shoes at a lower monetary cost than Country B can. B) Country A can produce shoes using fewer resources than Country B can. C) the demand for shoes is higher in Country A than in Country B. D) Country A can produce shoes at a lower cost in terms of other goods than Country B can.

D) Country A can produce shoes at a lower cost in terms of other goods than Country B can.

Suppose the wage rate in the labor market is $15 and the productivity of workers increases, which of the following statements is incorrect? A) The labor demand curve shifts to the right. B) If wages are flexible, there will be an increase in wages. C) If wages are sticky, there will be a shortage in the labor market. D) If wages are sticky, there will be a surplus in the labor market.

D) If wages are sticky, there will be a surplus in the labor market.

India has a comparative advantage compared to Spain in the production of clothing if A) India can produce clothing at a lower monetary cost than Spain can. B) India can produce clothing using fewer resources than Spain can. C) the demand for clothing is higher in India than in Spain. D) India can produce clothing at a lower cost in terms of other goods than Spain can.

D) India can produce clothing at a lower cost in terms of other goods than Spain can.

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the A) aggregate supply curve. B) Lucas supply curve. C) aggregate production function. D) Laffer curve.

D) Laffer curve.

Currency held outside banks + demand deposits + travelers checks + other checkable deposits = A) M3. B) M2 - M1. C) M3 - M1. D) M1.

D) M1.

Which of the following is not an investment in human capital? A) Local governments begin providing free hepatitis vaccinations to any resident who wants one. B) The Precision Tool Company teaches all its workers how to repair all the machines in the factory. C) Older workers return to school to update their skills. D) The Ferris Advertising Agency replaces its secretaries' typewriters with personal computers.

D) The Ferris Advertising Agency replaces its secretaries' typewriters with personal computers.

Keynes believed which of the following? A) The government has a role to play in fighting inflation, but not in fighting unemployment. B) The government has a role to play in fighting unemployment, but not in fighting inflation. C) The government does not have a role to play in fighting inflation or unemployment. D) The government has a role to play in fighting inflation and unemployment.

D) The government has a role to play in fighting inflation and unemployment.

Which of the following statements is not consistent with the quantity theory of money? A) The velocity of money can be affected by how frequently workers are paid. B) The velocity of money can be affected by the development of new financial instruments, such as interest-bearing checking accounts. C) The velocity of money can be affected by the manner in which the banking system clears transactions between banks. D) Velocity can change with changes in the interest rate.

D) Velocity can change with changes in the interest rate.

Which of the following represents the Lucas supply function? A) Y = f(Pe - P) B) Y = f(Pe + P) C) Y = f(P + Pe) D) Y = f(P - Pe)

D) Y = f(P - Pe)

Which of the following causes an increase in labor supply? A) when wages and the price level increase proportionately B) a decrease in income tax rates C) a decrease in the general price level D) a decrease in transfer payments

D) a decrease in transfer payments

Which of the following is the best example of a near money? A) a valuable painting B) a dollar bill C) a Treasury bond D) a money market account

D) a money market account

An unexpected increase in inventories has A) no effect on future production. B) a positive effect on future production. C) a negative effect on current production. D) a negative effect on future production.

D) a negative effect on future production.

If productivity increases as wages increase and firms pay a wage above the market clearing wage, then A) these firms will go out of business in the long run because they will not be able to compete with firms paying lower wages. B) these firms will face an excess demand for labor and will be able to hire the best workers in the market. C) these firms will have lower profit levels than their competitors. D) a potential benefit these firms may receive is a reduction in employee turnover.

D) a potential benefit these firms may receive is a reduction in employee turnover.

The classical view of the labor market is basically consistent with the assumption of ________ aggregate supply curve. A) a horizontal (or almost horizontal) B) a downward-sloping C) an upward-sloping D) a vertical (or almost vertical)

D) a vertical (or almost vertical)

If productivity increases as wages increase and firms pay a wage ________ the market clearing wage, then a potential benefit these firms may receive is a(n) ________ in employee turnover. A) below; increase B) below; reduction C) above; increase D) above; reduction

D) above; reduction

Monetarists believe that real output is determined by A) government spending. B) the rate of growth of the money supply. C) government planning. D) aggregate supply.

D) aggregate supply.

All of the following are properties of bonds except A) bonds are issued with a face value. B) bonds come with a maturity date. C) bondholders are paid a fixed, specified amount each year. D) all bonds are issued for time periods of no less than one year and no more than ten years.

D) all bonds are issued for time periods of no less than one year and no more than ten years.

When analyzing the effects of ________, what primarily matters is the shape of the AS curve. A) government spending B) net taxes C) the Z factors D) all of the above

D) all of the above

When the substitution effect is greater than the income effect, Juanita will not supply more work if A) the wage rate and the price level increase proportionately. B) the percentage increase in the price level is greater than the percentage change in wages. C) wages are falling faster than prices. D) all of the above

D) all of the above

Which of the following caused the productivity problem of the 1970s in the U.S.? A) low saving rate B) increased governmental regulations C) low spending on research and development D) all of the above

D) all of the above

A share of stock A) is a fractional ownership of the firm. B) gives the owner with other owners the right to pick the management of the company. C) does not promise a fixed annual payment. D) all of the above.

D) all of the above.

Supporters of supply-side economics claim that Reagan's tax policies were quite successful in stimulating the economy because A) almost immediately after the tax cuts, the economy expanded and the recession of 1980-1982 came to an end. B) inflation rates fell sharply from the high rates of 1980 and 1981. C) throughout most of the 1980s, federal receipts continued to rise even though tax rates had been cut. D) all of the above.

D) all of the above.

When output increases by 1%, the unemployment rate does not tend to fall by 1% in the short run because A) a firm is likely to meet some of the increase in output by increasing the number of hours worked per job. B) the number of people who become employed is less than the number of new jobs created. C) as output increases, the size of the labor force increases. D) all of the above.

D) all of the above.

The productivity of an input is the A) per capita cost of an input. B) sum of the total output produced by all inputs. C) net worth of the input. D) amount of output produced per unit of input.

D) amount of output produced per unit of input.

An intended goal of expansionary fiscal policy and an easing of monetary policy is A) an increase in interest rates. B) an increase in the price level. C) the equalization of the distribution of income. D) an increase in the level of aggregate output.

D) an increase in the level of aggregate output.

If a nation has most-favored-nation status conferred on it, then exports from that country A) will be priced higher than products exported from countries without most-favored-nation status. B) are exempt from all safety regulations. C) are sold below cost. D) are taxed at the lowest negotiated tariff rates.

D) are taxed at the lowest negotiated tariff rates.

Diminishing returns to a factor implies that with capital fixed A) as labor increases output always increases. B) as output increases, labor increases. C) as labor increases, output decreases. D) as labor increases, labor productivity eventually decreases.

D) as labor increases, labor productivity eventually decreases.

As the economy approaches full employment, the size of the multiplier will A) remain unchanged. B) become negative. C) become larger. D) become smaller.

D) become smaller.

Short-term securities are usually called ________ and long-term securities are usually called ________. A) notes; bills B) loans; notes C) bonds; stocks D) bills; bonds

D) bills; bonds

Which of the following schools of economic thought is decidedly opposed to government intervention in the macroeconomy? A) new classical B) monetarism C) Keynesian D) both A and B

D) both A and B

According to the life-cycle theory of consumption, people tend to dissave during their ________ years. A) main working B) early C) later D) both B and C

D) both B and C

The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced change in monetary policy affects A) the actual price level, but not the expected price level. B) neither the actual price level nor the expected price level. C) the expected price level, but not the actual price level. D) both the actual price level and the expected price level.

D) both the actual price level and the expected price level.

The U.S. dollar is an example of fiat money because A) it is the strongest currency in the world. B) it is the most widely used currency in international trade. C) it is backed by a large reserve of gold and silver. D) by law, it is decreed as money.

D) by law, it is decreed as money.

Fiscal policy affects the goods market through A) changes in money supply. B) changes in taxes and money supply. C) changes in government spending and money supply. D) changes in taxes and government spending.

D) changes in taxes and government spending.

After World War II, cigarettes were used as money in Germany. This is an example of A) fiat money. B) legal money. C) token money. D) commodity money.

D) commodity money.

Without the government or the foreign sector in the income-expenditure model, planned aggregate expenditure equals A) consumption plus actual investment. B) consumption plus inventory adjustment. C) consumption minus planned investment. D) consumption plus planned investment.

D) consumption plus planned investment.

A sudden increase in the price of oil causes a ________ inflation and ________ output. A) demand-pull; lower B) cost-push; higher C) demand-pull; higher D) cost-push; lower

D) cost-push; lower

To increase the price level the government could adopt policies that A) increase aggregate supply and aggregate demand. B) decrease aggregate supply and aggregate demand. C) increase aggregate supply and decrease aggregate demand. D) decrease aggregate supply and increase aggregate demand

D) decrease aggregate supply and increase aggregate demand

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________. A) increases; decreases B) decreases; increases C) decreases; remains constant D) decreases; decreases

D) decreases; decreases

If wages are sticky, an increase in labor A) demand decreases the wage rate. B) supply increases the wage rate. C) demand increases the wage rate. D) demand leaves wage rates intact.

D) demand leaves wage rates intact.

The purpose of the Corn Laws was to A) encourage imports and discourage exports, and thus keep the price of food low. B) encourage both exports and imports in order to integrate the British economy with the rest of Europe. C) discourage both imports and exports in order to promote economic self-sufficiency in Britain. D) discourage imports and encourage exports, and thus keep the price of food high.

D) discourage imports and encourage exports, and thus keep the price of food high.

Most monetarists ________ advocate expanding the money supply during bad times and ________ advocate slowing the growth of the money supply during good times. A) do; do B) do; do not C) do not; do D) do not; do not

D) do not; do not

The implementation lag for monetary policy tends to be much shorter than for fiscal policy for all of the following reasons except A) fiscal policy changes requires both houses of Congress and the President to act. B) monetary changes only require the Fed to act. C) fiscal policy usually requires committee hearings in both houses of Congress. D) fiscal policy changes only require the Fed to act.

D) fiscal policy changes only require the Fed to act.

Assume that the substitution effect dominates the income effect. When workers experience a positive price surprise, they A) correctly perceive that their real wage rate has fallen, which leads them to work fewer hours. B) incorrectly perceive that their real wage rate has fallen, which leads them to work fewer hours. C) correctly perceive that their real wage rate has risen, which leads them to work more hours. D) incorrectly perceive that their real wage rate has risen, which leads them to work more hours.

D) incorrectly perceive that their real wage rate has risen, which leads them to work more hours.

The rationale underlying policies to deregulate the economy is that these policies would A) increase aggregate demand. B) decrease short-run aggregate supply. C) decrease aggregate demand. D) increase short-run aggregate supply.

D) increase short-run aggregate supply.

If the United States decreases the tariff on imported tuna steaks, this will A) reduce the number of tuna steaks imported into the United States and reduce production of tuna steaks in the United States. B) increase the number of tuna steaks imported in the United States and increase the production of tuna steaks in the United States. C) reduce the number of tuna steaks imported in the United States and increase the production of tuna steaks in the United States. D) increase the number of tuna steaks imported in the United States and reduce the production of tuna steaks in the United States.

D) increase the number of tuna steaks imported in the United States and reduce the production of tuna steaks in the United States.

The Federal Reserve's policy to "lean against the wind" means that A) interest rates are decreased as the economy expands. B) reserve requirements are decreased as the economy expands. C) reserve requirements are decreased significantly during an economic expansion. D) interest rates are increased gradually as the economy expands.

D) interest rates are increased gradually as the economy expands.

If taxes depend on income, then the magnitude of the government spending multiplier ________ it would be if taxes were a lump-sum amount. A) could be either larger than or smaller than B) is larger than C) is equal to what D) is smaller than

D) is smaller than

When the AD curve is relatively flat, the Fed A) is only willing to accept small changes in output to keep the price level stable. B) is willing to accept large changes in the price level to keep output stable. C) is not willing to accept any changes in output to keep the price level stable. D) is willing to accept large changes in output to keep the price level stable.

D) is willing to accept large changes in output to keep the price level stable.

The desired level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is A) greater than the extra gain (in interest revenue and decreased storage costs). B) zero. C) less than the extra gain in (in interest revenue and decreased storage costs). D) just equal to the extra gain (in interest revenue and decreased storage costs).

D) just equal to the extra gain (in interest revenue and decreased storage costs).

Keynesian economics includes the idea that A) economic policies are ineffective. B) the economy is basically stable. C) prices adjust to clear the markets. D) labor markets don't always clear due to wage rigidities.

D) labor markets don't always clear due to wage rigidities.

Money that a government has required to be accepted in settlement of debts is A) fiat money. B) commodity money. C) barter money. D) legal tender.

D) legal tender.

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of A) government intervention and trade regulation. B) wage and price controls. C) closed economies and fiscal spending. D) market clearing and rational expectations.

D) market clearing and rational expectations.

The multiple by which total deposits can increase for every dollar increase in reserves is the A) required reserve ratio. B) bank's line of credit. C) deposit insurance limit. D) money multiplier.

D) money multiplier.

If aggregate demand changes while aggregate supply is stable, output and the unemployment rate are A) positively related. B) not related in the short run. C) not related neither in the long run nor in the short run. D) negatively related.

D) negatively related.

In a binding situation A) planned investment increases when the price level decreases. B) output increases when the price level decreases. C) planned investment and output both increase when the price level decreases. D) neither planned investment nor output change when the price level decreases.

D) neither planned investment nor output change when the price level decreases.

Those who believe in the rational expectations hypothesis advocate A) active fiscal policy during recessions. B) active monetary policy during recessions. C) active monetary policy during inflationary periods only. D) no policy intervention.

D) no policy intervention.

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation. A) increasing; increasing B) decreasing; increasing C) increasing; decreasing D) none of the above

D) none of the above

According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target. A) directly related B) inversely related C) negatively related D) not related

D) not related

The measured unemployment rate can be pushed below the natural rate, but A) only in the long run and only if the price level is constant. B) only in the long run and not without inflation. C) only in the short run and only if the price level is constant. D) only in the short run and not without inflation.

D) only in the short run and not without inflation.

Firms can finance capital spending by doing all of the following except A) selling stock in the company. B) issuing bonds. C) borrowing from a bank. D) paying dividends.

D) paying dividends.

Without the government or the foreign sector in the income-expenditure model, consumption equals A) planned aggregate expenditures plus actual investment. B) planned aggregate expenditures minus inventory adjustment. C) planned aggregate expenditures plus planned investment. D) planned aggregate expenditures minus planned investment.

D) planned aggregate expenditures minus planned investment.

According to the real business cycle theory, ________ are responsible for economic growth. A) expansionary fiscal and monetary policies B) positive shifts in the AD curve C) trade and income policies D) positive shifts in the AS curve

D) positive shifts in the AS curve

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours. A) positive; correctly; risen B) negative; correctly; fallen C) negative; incorrectly; risen D) positive; incorrectly; risen

D) positive; incorrectly; risen

Specialization and trade allow a country to A) produce and consume on its production possibility frontier. B) produce and consume inside its production possibility frontier. C) produce and consume outside its production possibility frontier. D) produce on its production possibility frontier and consume outside it.

D) produce on its production possibility frontier and consume outside it.

A firm is holding excess labor. This will A) increase the amount of capital employed. B) decrease the productivity of capital. C) increase labor productivity. D) reduce labor productivity.

D) reduce labor productivity.

The aggregate supply curve A) is the sum of the individual supply curves in the economy. B) is a market supply curve. C) embodies the same logic that lies behind an individual firm's supply curve. D) relates output with the price level.

D) relates output with the price level.

The Dow-Jones Industrial Average index is all of the following except A) an index based on 30 actively traded large companies on the New York Stock Exchange. B) the most widely followed U.S. stock index. C) the oldest U.S. stock index. D) representative of the U.S. economy.

D) representative of the U.S. economy.

In general, monetary policy has a longer ________ lag than fiscal policy but shorter ________ lag. A) recognition; response B) implementation; recognition C) implementation; response D) response; implementation

D) response; implementation

Under the original Gramm-Rudman-Hollings Act, a congressionally enacted budget deficit that was larger than the targeted amount would A) result in automatic tax cuts. B) result in automatic spending increases. C) result in both automatic tax cuts and spending increases. D) result in automatic spending cuts.

D) result in automatic spending cuts.

A decrease in lump-sum taxes will A) make the consumption function flatter. B) make the consumption function steeper. C) shift the consumption function downward. D) shift the consumption function upward.

D) shift the consumption function upward.

The type of unemployment that is most likely to arise as a result of technological changes is A) cyclical unemployment. B) seasonal unemployment. C) frictional unemployment. D) structural unemployment.

D) structural unemployment.

The Laffer curve shows the relationship between A) aggregate supply and aggregate demand. B) unemployment and inflation. C) consumer spending and business spending. D) tax rates and tax revenues.

D) tax rates and tax revenues.

The ratio at which one country trades a domestic product for imported product is that country's A) absolute advantage. B) comparative advantage. C) cost ratio. D) terms of trade.

D) terms of trade.

Those who believe that wages adjust quickly to clear the labor market also believe that A) the AS curve is upward sloping. B) the AD curve is steep. C) the AD curve is flat. D) the AS curve is vertical.

D) the AS curve is vertical.

The relative-wage explanation for the existence of downwardly sticky wages emphasizes A) unspoken agreements between workers and firms that firms will not cut wages. B) the incentive that firms may have to hold wages above the market clearing rate. C) employment contracts that stipulate workers' wages, usually for a period of one to three years. D) the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other firms and industries are receiving similar cuts.

D) the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other firms and industries are receiving similar cuts.

Velocity is not constant if A) the money supply does not depend on the interest rate. B) the supply of money depends on the interest rate. C) the price level increases as aggregate output increases. D) the demand for money depends on the interest rate.

D) the demand for money depends on the interest rate.

In a binding situation A) only changes in the price level change the interest rate. B) only changes in the Z factors change the interest rate. C) changes in both the price level and in the Z factors change the interest rate. D) the interest rate is always zero.

D) the interest rate is always zero.

The terms of trade refers to A) the documents that two countries sign in order to facilitate trade. B) the conditions imposed by the importing country regarding the quality of the imported goods. C) the exchange rate determined by the exporting and the importing countries. D) the ratio at which one country trades a domestic product for imported product.

D) the ratio at which one country trades a domestic product for imported product.

According to ________, trade between two countries allows each of the trading countries to allocate its resources most efficiently. A) the Heckscher-Ohlin theorem B) the theory of absolute advantage C) the General Agreement on Tariffs and Trade D) the theory of comparative advantage

D) the theory of comparative advantage

If the Phillips curve is vertical in the long run, then A) there is a trade-off between inflation and unemployment in the long run. B) the inflation rate will always be zero in the long run. C) the unemployment rate will be zero in the long run. D) there is no trade-off between inflation and unemployment in the long run.

D) there is no trade-off between inflation and unemployment in the long run.

When the manager of a department store attaches price tags to his/her products, he/she is using money as a A) medium of exchange. B) store of value. C) unit of transfer. D) unit of account.

D) unit of account.

If the labor force is 50 million and 48 million are employed then the unemployment rate is A) 2%. B) 4%. C) 5%. D) 52%.

B) 4%.

The concept of "market clearing" is adopted and defended by A) Keynesian economists. B) Classical economists. C) fine-tuning economists. D) demand-side economists.

B) Classical economists.

Income Mexican citizens earn in the U.S. counts in A) U.S. GNP. B) Mexican GNP. C) Mexican GDP. D) both U.S. and Mexican GDP.

B) Mexican GNP.

John Maynard Keynes' most notable published work is entitled A) Capitalism Doomed. B) The General Theory of Employment, Interest, and Money. C) The Communist Manifesto. D) Freakonomics.

B) The General Theory of Employment, Interest, and Money.

The diagram that shows the income received and payments made by each sector of the economy is the A) aggregate demand-aggregate supply diagram. B) circular flow diagram. C) income flow diagram. D) income-production diagram.

B) circular flow diagram.

Dividends are A) government profits distributed among bondholders. B) corporate profits distributed among shareholders. C) capital gains realized by stockholders. D) promissory notes issued by corporations.

B) corporate profits distributed among shareholders.

According to the Classical model, unemployment A) could not persist because wages would rise to eliminate the excess supply of labor. B) could not persist because wages would fall to eliminate the excess supply of labor. C) could be eliminated through fiscal and monetary policies. D) could be eliminated only through government intervention.

B) could not persist because wages would fall to eliminate the excess supply of labor.

Which prices are used to measure goods and services in calculating GDP? A) past year prices B) current prices C) average prices D) projected prices

B) current prices

In the circular flow diagram, firms ________ labor and households ________ goods and services. A) demand; supply B) demand; demand C) supply; demand D) supply; supply

B) demand; demand

If output is rising and unemployment is falling, the economy must be in a(n) A) contraction. B) expansion. C) depression. D) hyperinflationary period.

B) expansion.

A period of very rapid increase in the overall price level is known as A) stagnation. B) hyperinflation. C) stagflation. D) depression.

B) hyperinflation.

Double counting can be avoided by A) including the value of intermediate goods in the current year. B) not counting the value of intermediate goods in GDP. C) including the value of intermediate goods in the GNP but not in the GDP. D) including the value of intermediate goods in the production year but not in the selling year of those goods.

B) not counting the value of intermediate goods in GDP.

Aggregate behavior is A) the behavior of each household and firm. B) the behavior of each individual. C) the behavior of all households and firms together. D) none of the above.

C) the behavior of all households and firms together.

The equation for GDP using the expenditure approach is A) GDP = C + I + G + EX - IM. B) GDP = C + I + G + (IM - EX). C) GDP = C + I + G + EX + IM. D) GDP = C + I + G - EX - IM.

A) GDP = C + I + G + EX - IM.

If receipts of factor income from the rest of the world are less than payments of factor income to the rest of the world, then A) GDP is greater than GNP. B) GDP equals GNP. C) GNP equals NNP. D) GNP is greater than GDP.

A) GDP is greater than GNP.

Government policies regarding taxes and expenditures are called A) fiscal policy. B) income policies. C) supply-side policy. D) monetary policy.

A) fiscal policy.

Which of the following is subtracted from national income to get to personal income? A) retained earnings B) personal interest income C) depreciation D) personal taxes

A) retained earnings

A transfer payment is A) a bonus to get a worker to accept a transfer. B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment. C) a cash payment for transferring a good from one person to another. D) an in kind payment for working "off the books."

B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment.

The government wants to encourage consumer spending through cutting income taxes. This is an example of A) an incomes policy. B) a fiscal policy. C) a supply-side policy. D) a monetary policy.

B) a fiscal policy.

One of the flaws of GDP is that it A) includes only transactions that take place in formal businesses. B) ignores transactions that do not take place in organized markets. C) includes measures of the underground economy. D) includes measures of changes of life associated with producing output.

B) ignores transactions that do not take place in organized markets.

In the United States between 1933 and 1937, aggregate output A) increased since the economy was finally out of the Great Depression. B) increased even though this was during the Great Depression. C) decreased even though the economy was finally out of the Great Depression. D) decreased as this was during the Great Depression.

B) increased even though this was during the Great Depression.

Interest paid by households and by the government is A) counted in national income, but not in GDP. B) not counted in GDP because it is not assumed to flow from the production of goods and services. C) not counted in GDP but is counted in GNP because it is paid by U.S. citizens to people living in the United States. D) included in both GDP and GNP because it represents an expenditure by one group and a receipt of income by another group.

B) not counted in GDP because it is not assumed to flow from the production of goods and services.

In the goods-and-services market, households A) only supply. B) only demand. C) both supply and demand. D) neither supply nor demand.

B) only demand.

The mechanism that normally coordinates what goes on in an economy is the A) stock market. B) price system. C) government. D) Federal Reserve.

B) price system.

According to Classical models, the level of employment is determined primarily by A) the level of aggregate demand for goods and services. B) prices and wages. C) government taxation. D) government spending.

B) prices and wages.

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are A) administered prices. B) sticky prices. C) regulatory prices. D) market prices.

B) sticky prices.

The change in capital stock in a period is equal to A) the ratio of the amount of the capital at the beginning of the period to the amount of depreciation. B) the amount of the capital stock at the beginning of the period plus gross investment minus depreciation. C) the amount of the capital at the beginning of the period plus gross investment. D) the amount of the capital at the beginning of the period minus net investment.

B) the amount of the capital stock at the beginning of the period plus gross investment minus depreciation.

It has become conventional to classify an economic downturn as a recession when aggregate output declines for A) three consecutive quarters. B) two consecutive quarters. C) a year. D) six consecutive quarters.

B) two consecutive quarters.

Hyperinflation refers to a(n) A) increase in both price level and output. B) very rapid increase in the overall price level. C) very rapid decrease in the overall price level. D) decrease in unemployment which is accompanied by a rapid increase in wages.

B) very rapid increase in the overall price level.

If the labor force is 500 and employment is 450, then the unemployment rate is A) 100%. B) 90%. C) 10%. D) 0%.

C) 10%.

Which of the following is not a correct statement? A) Companies can issue shares and issue bonds. B) The government issues bonds but does not issue shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't.

C) Bondholders earn dividends but shareholders don't.

The change in business inventories is measured as A) final sales minus GDP. B) final sales plus GDP. C) GDP minus final sales. D) the ratio of final sales to GDP.

C) GDP minus final sales.

Which of the following would be an example of fine-tuning? A) Firms increase wages to attract high-quality workers. B) Firms increase employment benefits to increase workers' productivity. C) The federal government enacts legislation to increase spending to try to stimulate the economy. D) The federal government passes legislation that would require that the government's budget always be balanced.

C) The federal government enacts legislation to increase spending to try to stimulate the economy.

Which of the following is not counted in the GNP of the United States? A) The wage of a U.S. citizen who works in a foreign country for a foreign firm. B) The interest earned by a U.S. bank on loans to a business firm located in Brazil. C) The profit earned by a restaurant located in the United States but owned by a Mexican company. D) The value of services that are produced by state and local governments in the United States.

C) The profit earned by a restaurant located in the United States but owned by a Mexican company.

An example of a transfer payment is A) an interest payment on a General Motors' bond. B) the added value of stock from the time it was bought to the time it was sold. C) a Social Security retirement benefit. D) the salary paid to a member of the armed forces.

C) a Social Security retirement benefit.

Which of the following is a good or service counted in GDP? A) tires Ford buys to put on a car B) a used tire you buy for your personal car C) a new tire you buy for your personal car D) used tires bought by a used car dealer to put on a car on his lot

C) a new tire you buy for your personal car

A capital gain is A) a financial instrument that gives the holder a share in the ownership of a firm and therefore the right to share in the profits of the firm. B) the portion of a corporation's profits that the firm pays out each period to its shareholders. C) an increase in the value of an asset over the price initially paid for it. D) the difference between an individual's economic income and money income.

C) an increase in the value of an asset over the price initially paid for it.

The largest income component of GDP is A) proprietors' income. B) rental income. C) compensation of employees. D) corporate profit.

C) compensation of employees.

The single largest expenditure component in GDP is A) government spending. B) investment. C) consumption. D) net exports.

C) consumption.

When calculating GDP, ________ are added and ________ are subtracted. A) exports; net exports B) imports; exports C) exports; imports D) imports; net exports

C) exports; imports

If Congress increases government spending, it is using A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

C) fiscal policy.

Net investment equals A) GDP minus final sales. B) gross investment minus final sales. C) gross investment minus depreciation. D) depreciation plus GDP.

C) gross investment minus depreciation.

Since most economies, on average, ________ over time, business cycles show a ________ trend. A) sow down; negative B) suffer recessions; negative C) grow; positive D) remain stable; zero

C) grow; positive

What type of tax affects the amount of money you pay for a product? A) direct tax B) income tax C) indirect tax D) all of the above

C) indirect tax

An increase in the overall price level is known as A) deflation. B) recession. C) inflation. D) stagflation.

C) inflation.

If the central bank increases the money supply, it is conducting A) fiscal policy. B) supply-side policy. C) monetary policy. D) incomes policy.

C) monetary policy.

Compared to the period after World War II, business cycles in the United States before World War II were A) less severe. B) of equal severity. C) more severe. D) nonexistent.

C) more severe.

If real GDP in 2016 using 2015 prices is lower than nominal GDP of 2016, then A) prices in 2016 are lower than prices in 2015. B) nominal GDP in 2016 equals nominal GDP in 2015. C) prices in 2016 are higher than prices in 2015. D) real GDP in 2016 is larger than real GDP in 2015.

C) prices in 2016 are higher than prices in 2015.

If real GDP in 2016 using 2015 prices is higher than nominal GDP of 2016, then A) prices in 2016 are higher than prices in 2015. B) nominal GDP in 2016 equals nominal GDP in 2015. C) prices in 2016 are lower than prices in 2015. D) real GDP in 2016 is smaller than real GDP in 2015.

C) prices in 2016 are lower than prices in 2015.

The GDP deflator is the A) difference between real GDP and nominal GDP multiplied by 100. B) difference between nominal GDP and real GDP multiplied by 100. C) ratio of nominal GDP to real GDP multiplied by 100. D) ratio of real GDP to nominal GDP multiplied by 100.

C) ratio of nominal GDP to real GDP multiplied by 100.

Unemployment generally ________ during recessions and ________ during expansions. A) falls; rises B) falls; falls C) rises; falls D) rises; rises

C) rises; falls

The term business cycle refers to the A) short-term ups and downs in the price level. B) long-term trends in the price level. C) short-term ups and downs in the level of economic activity. D) long-term trends in the level of economic activity.

C) short-term ups and downs in the level of economic activity.

According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a A) surplus of labor and wages will rise. B) shortage of labor and wages will fall. C) shortage of labor and wages will rise. D) surplus of labor and wages will fall.

C) shortage of labor and wages will rise.

The demand for corn has increased in May without any change in supply. Eight months later there still has been no change in corn prices. This is an example of a A) price floor. B) price control. C) sticky price. D) macroeconomic price.

C) sticky price.

Macroeconomics A) studies the behavior of individual consumers, firms and markets. B) involves the interaction between different countries in specific markets. C) studies the behavior of the economy as a whole. D) deals with both individual decisions and the sum of those individual decisions.

C) studies the behavior of the economy as a whole.

The government implements fiscal policy when it changes A) spending and/or interest rate. B) money supply and/or taxes. C) taxes and/or spending. D) taxes and/or interest rate.

C) taxes and/or spending.

Which of the following would be counted in 2016's GDP? A) the value of a loan you take in 2016 B) the value of a TV that was produced in 2015 but not sold until 2016 C) the bonus check a stockbroker gets from his/her company in 2016 D) the value of a bond sold by the federal government

C) the bonus check a stockbroker gets from his/her company in 2016

In which of the following markets are funds demanded and supplied? A) the labor market B) the goods and services market C) the money market D) the factor market

C) the money market

Which of the following is not a topic studied in Macroeconomics? A) gross domestic product B) the unemployment rate C) the price of Dell computers D) the inflation rate

C) the price of Dell computers

Which of the following is not included in 2016's GDP? A) the value of a motorcycle produced in the United States and exported to Japan B) the profit earned in 2016 from selling a stock that you purchased in 2008 C) the value of a motor that is used in the production of a lawn mower D) the commission earned by a headhunter when she locates a job for a client

C) the value of a motor that is used in the production of a lawn mower

Gross national income is A) GNP converted into dollars using an average exchange rate over several years adjusted for rates of inflation. B) GDP converted into dollars using an average exchange rate over several years adjusted for rates of inflation. C) GNP measured using an incomes approach. D) GNP divided by population.

A) GNP converted into dollars using an average exchange rate over several years adjusted for rates of inflation.

Unemployment means that A) at the going wage rate, there are people who want to work but cannot find work. B) people are not willing to work at the going wage rate. C) there are some people who will not work at the going wage rate. D) there is excess demand in the labor market.

A) at the going wage rate, there are people who want to work but cannot find work.

Jake retired from the police force. He started working an hour or two a day at a paid job in city's courthouse. Jake is A) employed. B) in the labor force. C) unemployed. D) not in the labor force.

A) employed.

If Congress decreases government spending, it is using A) fiscal policy. B) supply-side policy. C) monetary policy. D) incomes policy.

A) fiscal policy.

The total market value of all final goods and services produced within a given period by factors of production located within a country is A) gross domestic product. B) gross national product. C) net national product. D) net national income.

A) gross domestic product.

If the central bank decreases the money supply, it is conducting A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

A) monetary policy.

If the GDP deflator is greater than 100, then A) nominal GDP is greater than real GDP. B) nominal GDP is lower than real GDP. C) nominal GDP equals real GDP. D) prices decreased by more than half between the current and the base years.

A) nominal GDP is greater than real GDP.

Government policymakers would like to have high ________ and low ________. A) output growth; unemployment and inflation B) unemployment and output growth; inflation C) output growth and inflation; unemployment D) inflation; unemployment and output growth

A) output growth; unemployment and inflation

A radiologist buys a new x-ray machine from General Electric to use in her medical practice. This x-ray machine is included in GDP as A) part of gross private domestic investment. B) a durable consumption good. C) a service. D) a nondurable consumption good.

A) part of gross private domestic investment.

Which of the following is added to personal income to get national income? A) retained earnings B) personal interest income C) depreciation D) personal taxes

A) retained earnings

A household that spends less than it receives in income during a given period is A) saving. B) dissaving. C) running a deficit. D) receiving transfer payments.

A) saving.

Rapid increases in the price level during periods of recession or high unemployment are known as A) stagflation. B) stagnation. C) depression. D) inflation.

A) stagflation.

The demand for massage therapists declined in the spring of 2016, but the starting wages paid to massage therapists was still the same at the end of 2016. This is an example of a A) sticky price. B) flexible price. C) highly regulated market. D) price control.

A) sticky price.

Fiscal policies are government policies regarding ________ and ________. A) taxes; expenditures B) income; saving C) money supply; money demand D) revenues; earnings

A) taxes; expenditures

Deflation occurs when A) the average price level declines. B) economic activity declines. C) the economic growth rate declines. D) the unemployment rate declines.

A) the average price level declines.

In which basic market would DVDs be traded? A) the goods and services market B) the money market C) the labor market D) the factor market

A) the goods and services market

Proprietors' income is A) the income of unincorporated businesses. B) the income of all businesses—incorporated and unincorporated. C) the income of sole proprietorships. D) the income of partnerships.

A) the income of unincorporated businesses.

The trend of the economy is A) the long run growth path of the economy. B) the long run inflation rate. C) the long run unemployment rate. D) the short run production capacity of an economy.

A) the long run growth path of the economy.

In the circular flow diagram, the different payments made by firms to households include A) wages and profits. B) interest and taxes. C) transfer payments and dividends. D) taxes and transfer payments.

A) wages and profits.

Which of the following statements is false? A) The rate of change in economic activity is used to assess whether an economy is expanding or contracting. B) Short-term ups and downs in the economy are known as business cycles. C) During a recession, output and employment are falling. D) Business cycles are always symmetric—the length of an expansion is the same as the length of a contraction.

D) Business cycles are always symmetric—the length of an expansion is the same as the length of a contraction.

Which of the following is a correct statement? A) Companies issue shares but don't issue bonds. B) The government issues both bonds and shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't.

D) Shareholders earn dividends but bondholders don't.

Which of the following is an assumption used by Classical economists? A) Wages adjust downward but not upward. B) Wages adjust upward but not downward. C) Wages are inflexible. D) Wages adjust both upward and downward.

D) Wages adjust both upward and downward.

Gross national product is the total market value of A) all final and intermediate goods and service produced by resources owned by a country in a given year. B) all final and intermediate goods and services produced in a country, regardless of who owns the resources. C) all final goods and services produced in a country in a given year, regardless of who owns the resources. D) all final goods and services produced by resources owned by a country, regardless of where production takes place.

D) all final goods and services produced by resources owned by a country, regardless of where production takes place.

Gross domestic product measures A) the total spending of everyone in the economy. B) the value of all output in the economy. C) the total income of everyone in the economy. D) all of the above

D) all of the above

GDP is not a perfect measure of social welfare and the society's economic well-being because A) it does not say anything about the distribution of income. B) GDP accounting rules do not adjust for production that causes negative externalities. C) it does not include all economic activities in the economy. D) all of the above.

D) all of the above.

The GDP of the U.S. in 2014 was around $17.4 trillion. This means A) that the value of output in the U.S. in 2014 was around $17.4 trillion. B) that total income in the U.S. in 2014 was around $17.4 trillion. C) that total spending on final goods and services in the U.S. in 2014 was around $17.4 trillion. D) all of the above.

D) all of the above.

The suppliers in the goods-and-services market are A) households and business firms. B) households, the government, and the rest of the world. C) the government and business firms. D) business firms and the rest of the world.

D) business firms and the rest of the world.

A period during which aggregate output rises is known as a(n) A) recession. B) inflation. C) hyperinflation. D) expansion.

D) expansion.

The demanders in the goods-and-services market are A) households and business firms. B) households, the government, and the rest of the world. C) the government and business firms. D) households, the government, business firms, and the rest of the world.

D) households, the government, business firms, and the rest of the world.

Policies designed to affect the quantity of money are A) fiscal policies. B) supply side or growth policies. C) government spending policies. D) monetary policies.

D) monetary policies.

The only component of GDP which can have a negative value is A) government spending. B) consumption expenditures. C) private investment expenditures. D) net exports.

D) net exports.

Gross investment minus depreciation is equal to A) non-residential investment. B) gross national product. C) the value of durable goods. D) the change in capital stock.

D) the change in capital stock.

According to Keynes, the level of employment is determined by A) flexible wages and prices. B) interest rates. C) price and wages. D) the level of aggregate demand for goods and services.

D) the level of aggregate demand for goods and services.

The personal saving rate is A) the difference between total personal spending and personal saving. B) the difference between personal income and disposable personal income. C) the ratio of personal income to personal saving. D) the percentage of disposable personal income that is saved.

D) the percentage of disposable personal income that is saved.

A dividend is A) a promissory note issued by corporations when they borrow money. B) an increase in the value of an asset over the purchase price initially paid for it. C) the difference between the interest rate a bank pays on deposits and the interest rate it charges for loans. D) the portion of a corporation's profits that the firm pays out each period to its shareholders.

D) the portion of a corporation's profits that the firm pays out each period to its shareholders.

Which of the following is counted in the GNP of the United States? A) the wage of a foreign citizen who works in the United States for a U.S. firm B) the interest earned by a Brazilian bank on loans to a business firm located in the United States C) the profit earned by a restaurant located in the United States but owned by a Guatemalan company D) the value of services that are produced by state and local governments in the United States

D) the value of services that are produced by state and local governments in the United States

The unemployment rate equals A) labor force/population. B) unemployed/employed. C) (employed - unemployed)/labor force. D) unemployed/labor force.

D) unemployed/labor force.