Practice Exam 1 MCQ
An economy is at full-employment equilibrium. If consumers and firms become more optimistic about future income and profits, which of the following will occur in the short run?
Aggregate demand will shift rightward, increasing real output and the price level.
Which of the following will cause an increase in the equilibrium real interest rate?
An increase in investment demand
Assume a country's economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand?
An increase in the price level
Which of the following would cause a movement from point S to point R on the short-run Phillips curve above?
An unanticipated increase in government spending
Suppose countries Alphania and Betania produce electronics and apparel using identical resources. Which of the following is true if Alphania exports electronics to and imports apparel from Betania within a free-trade system ?
Betania has a comparative advantage in producing apparel, and Alphania has a comparative advantage in producing electronics.
Assume that a country's government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run?
Bond Prices - Decrease, Price Level - Increase
If foreign financial investors no longer see country A as a safe haven, which of the following will most likely occur in the short run?
Country A's currency will depreciate.
Assume a country's banking system has ample reserves. Which of the following combinations of fiscal and monetary policy will reduce the price level?
Decreasing government spending and increasing administered interest rates
Assume a country's banking system has limited reserves. If the government has increased the budget deficit and interest rates have remained constant, which of the following is true?
Government spending is greater than tax revenue, and the central bank increases the money supply.
Which of the following combinations of changes in income taxes, real interest rate, and investment spending is most likely to promote economic growth?
Income taxes- Decrease, Interest Rate - Decrease, Investment - Increase
Which of the following will most likely promote long-run economic growth?
Increasing funding for research and development
Which of the following policy actions will promote long-run economic growth?
Increasing investment in human capital
An increase in inventories will increase which component of gross domestic product?
Investment expenditures
Which of the following is true of a current account deficit?
It is financed by a surplus in the financial (capital) account.
Which of the following would most likely benefit from unexpected deflation?
Lenders
In the country of Peirce, government spending decreased while the level of private savings increased. How will these changes affect the real interest rate and interest-sensitive spending in the short run?
The real interest rate will decrease, and interest-sensitive spending will increase.
Which of the following will happen if a country's government reduces business taxes?
The short-run aggregate supply curve will shift to the right.
The graph above shows the foreign exchange market for United States dollars in terms of Japanese yen. Assume that there is an increase in United States consumers' preference for Japanese automobiles. Which of the following changes will most likely take place in the market for dollars?
The supply of dollars will increase.
If policy makers use fiscal policy to reduce inflation, which of the following will most likely happen in the short run?
The unemployment rate will increase.
Assume that the United States central bank conducts monetary policy with the goal of increasing the federal funds rate. How will the increase in the federal funds rate affect the value of the United States dollar on the foreign exchange market and United States exports?
The value of the dollar will increase, and U.S. exports will decrease.
Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways?
Total Reserves - No change, Money Multiplier - Increase, Money Supply- Increase
Recession can be caused by
a decrease in aggregate demand
An increase in both the inflation rate and the unemployment rate can be illustrated by
a rightward shift of the short-run Phillips curve
In the short run, a tight monetary policy tends to cause
an increase in interest rate and a decrease in private investment
For a country whose banking system has limited reserves, an open-market operation by the country's central bank to reduce the unemployment rate would be to
buy bonds to decrease the interest rate and to increase aggregate demand
An increase in the number of discouraged workers causes the unemployment rate to
decrease along with the labor-force participation rate
All of the following may result in increases in real gross domestic product in the long run EXCEPT
decrease in factor productivity
Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as
frictionally unemployed
The consumer price index (CPI) does not measure the true cost of inflation because
improvements in the quality of goods or services are not fully reflected
As an indicator of an impending recession, inventories will most likely
increase as a result of a decrease in consumption
In the long run, a fully anticipated expansion of the money supply will
increase both the nominal gross domestic product and the price level
A production possibilities curve that is concave to the origin (bowed out) implies that as more of a good is produced, the opportunity cost
increases
Crowding out occurs when investment spending by the private sector decreases as a result of
increasing interest rates caused by an increase in government borrowing
The long-run Phillips curve indicates that there are no trade-offs between
inflation and unemployment
A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's
labor force
Olivia volunteers full time at an animal shelter and will not accept any offers for a paid job for the next six months. Olivia is
not in the labor force
Assume that a nation's real gross domestic product (GDP) grows at a higher rate than its population over a given period of time. It can be concluded that
real GDP per capita has increased
Government investment in human capital is likely to shift
the aggregate demand curve to the right in the short run and the aggregate supply curve to the right in the long run
The demand curve for money shifts to the right when
the nominal gross domestic product increases
In the foreign exchange market, the exchange rate is defined as
the price of one currency in terms of another currency
Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of
$40 billion
If the required reserve ratio is 10 percent, what is the maximum change in the money supply from John's deposit of $50,000 cash into his checking account?
$450,000
If real output is $9,000, and the price level is 2, and the velocity of money is 3, then the money supply is
$6,000
Assume Country X has the following international transactions, in billions of dollars, during a given period of time. What is the balance on the current account, in billions of dollars, for the period?
+70
Suppose that the real interest rate is equal to seven percent and the expected inflation rate is currently three percent. If an oil crisis in the Middle East increases the expected inflation rate to four percent, the new nominal interest rate is equal to
11%
In the long run, government subsidies that promote the development of technology with widespread business applications will have which of the following effects?
A positive supply shock and lower price level
Based on the graph above, demand-pull inflation is caused by a movement from
AD1 to AD2
If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is
20 percent
According to the data above, in which year was real gross domestic product (GDP) the largest?
2010
Which of the following transactions would increase the current account surplus in Japan's balance of payments accounts?
A Japan-based company sells roasted coffee to Canada.
Which of the following will most likely result in an increase in aggregate demand?
A decrease in the central bank's administered interest rates
A decrease in taxes will necessarily result in an increase in which of the following?
Nominal gross domestic product
Economic growth is best measured by a sustained increase in which of the following?
Per capita real gross domestic product
With an expansionary fiscal policy, what will most likely happen to the real gross domestic product (GDP) and the nominal interest rate in the short run?
Real GDP- Increase, Nominal Interest Rate - Increase
In the coffee market, which of the following changes will increase the price and decrease the quantity of coffee?
Supply - Decrease, Demand - Change
Assume a country's banking system has limited reserves. Which of the following policy actions will directly increase the money supply?
The central bank purchases government bonds on the open market.
Which of the following statements about inflation is true in the short run?
The economy's real output increases when there is demand-pull inflation and decreases when there is cost-push inflation.
If a country has a balanced budget and then the country's government increases transfer payments without increasing taxes, which of the following will most likely occur?
The government's budget will move into deficit, and the national debt will rise.
If government spending increases and at the same time a country's central bank conducts monetary policy to increase its policy rate, the interest rate and private investment in plant and equipment will most likely change in which of the following ways?
The interest rate will increase and private investment in plant and equipment will decrease.
Assume a country's banking system has limited reserves. Which of the following results when the central bank sells bonds to commercial banks?
The money supply decreases.
