question
In a mixed economy, what to produce and how much to produce are determined by:
A) a central planning agency
B) a private planning agency
C) an international planning agency
D) marketed and the government
E) large corporations and small entrepreneurs
A) a central planning agency
B) a private planning agency
C) an international planning agency
D) marketed and the government
E) large corporations and small entrepreneurs
answer
D
question
Which of the following statements exemplifies the concept of structural unemployment?
A) new entrants into the labor force have trouble finding jobs
B) workers leave their current jobs to find better jobs
C) workers are laid off because aggregate demand has declined
D) workers are fired because consumers have reduced their total expenditures
E) workers are fired because their skills are no longer in demand
A) new entrants into the labor force have trouble finding jobs
B) workers leave their current jobs to find better jobs
C) workers are laid off because aggregate demand has declined
D) workers are fired because consumers have reduced their total expenditures
E) workers are fired because their skills are no longer in demand
answer
E
question
If two coats are currently being produced, the opportunity cost of producing the third coat is
A) 85 belts
B) 75 belts
C) 40 belts
D) 15 belts
E) 10 belts
A) 85 belts
B) 75 belts
C) 40 belts
D) 15 belts
E) 10 belts
answer
D
question
The best combination of belts and coats for this economy to produce is
A) 95 belts and 1 coat
B) 85 belts and 2 coats
C) 70 belts and 3 coats
D) 40 belts and 4 coats
E) indeterminate with the available information
A) 95 belts and 1 coat
B) 85 belts and 2 coats
C) 70 belts and 3 coats
D) 40 belts and 4 coats
E) indeterminate with the available information
answer
E
question
The unemployment rate measures the percentage of
A) people in the labor force who do not have jobs
B) people in the labor force who have a part-time job but looking for a full-time job
C) people who do not have jobs and have given up looking for work
D) people in the adult population who do not have jobs
E) people in the adult population who have temporary jobs
A) people in the labor force who do not have jobs
B) people in the labor force who have a part-time job but looking for a full-time job
C) people who do not have jobs and have given up looking for work
D) people in the adult population who do not have jobs
E) people in the adult population who have temporary jobs
answer
A
question
The federal funds rate is the interest rate that
A) the Federal Reserve charges the federal government on its loans
B) banks charge one another for short-term loans
C) banks charge their best customers
D) equalizes the yield on government bonds and corporate bonds
E) is equal to the inflation rate
A) the Federal Reserve charges the federal government on its loans
B) banks charge one another for short-term loans
C) banks charge their best customers
D) equalizes the yield on government bonds and corporate bonds
E) is equal to the inflation rate
answer
B
question
Country A can produce either 2 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 tons with 10 units of labor. Based on this information, which of the following is true?
A) Country A has an absolute advantage in the production of cocoa, while country B has a comparative advantage in the production of cocoa.
B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.
C) Country A has an absolute advantage in the production of cocoa, while country B has a comparative advantage in the production of cars.
D) Country A has a comparative disadvantage in the production of both goods.
E) Neither country has a comparative advantage in the production of either good.
A) Country A has an absolute advantage in the production of cocoa, while country B has a comparative advantage in the production of cocoa.
B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.
C) Country A has an absolute advantage in the production of cocoa, while country B has a comparative advantage in the production of cars.
D) Country A has a comparative disadvantage in the production of both goods.
E) Neither country has a comparative advantage in the production of either good.
answer
B
question
Which of the following best explains why transfer payments are not included in the calculation of gross domestic product?
A) transfer payments are used to pay for intermediate goods, and intermediate goods are excluded from gdp.
B) transfer payments are a government expenditure, and government expenditures are excluded from gdp.
C) recipients of transfer payments have not produced or supplied goods and services in exchange for these payments
D) recipients of transfer payments are usually children, and income earned by children is excluded in gdp.
E) recipients of transfer payments are sometimes not citizens of the united states
A) transfer payments are used to pay for intermediate goods, and intermediate goods are excluded from gdp.
B) transfer payments are a government expenditure, and government expenditures are excluded from gdp.
C) recipients of transfer payments have not produced or supplied goods and services in exchange for these payments
D) recipients of transfer payments are usually children, and income earned by children is excluded in gdp.
E) recipients of transfer payments are sometimes not citizens of the united states
answer
C
question
Which of the following can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994?
A) it remains unchanged
B) it decreased by 25%
C) it decreased by 20%
D) it increased by 20%
E) it increased by 25%
A) it remains unchanged
B) it decreased by 25%
C) it decreased by 20%
D) it increased by 20%
E) it increased by 25%
answer
E
question
Which of the following would cause the production possibilities curve shown above to shift outward?
A) reopening steel plants that had been closed
B) rehiring laid-off steelworkers
C) using machinery for missile production instead of steel production
D) using machinery for steel production instead of missile production
E) developing a more efficient steelmaking process
A) reopening steel plants that had been closed
B) rehiring laid-off steelworkers
C) using machinery for missile production instead of steel production
D) using machinery for steel production instead of missile production
E) developing a more efficient steelmaking process
answer
E
question
If in a specified year nominal GDP grew by 11% and rGDP grew by 4%, inflation for this year would be
A) -7%
B) 7%
C) 8%
D) 11%
E) 15%
A) -7%
B) 7%
C) 8%
D) 11%
E) 15%
answer
B
question
Which of the following is an example of structural unemployment?
A) a compute programmer who leaves her job to move to Florida
B) a worker who loses his job during a recession
C) an autoworker who is replaced by a robot
D) a construction worker who is always unemploted during the winter months
E) a worker who is engaged in unproductive work
A) a compute programmer who leaves her job to move to Florida
B) a worker who loses his job during a recession
C) an autoworker who is replaced by a robot
D) a construction worker who is always unemploted during the winter months
E) a worker who is engaged in unproductive work
answer
C
question
An increase in which of the following will increase the value of the spending multiplier?
A) the supply of money
B) equilibrium output
C) personal income tax rates
D) the marginal propensity to consume
E) the required reserve ratio
A) the supply of money
B) equilibrium output
C) personal income tax rates
D) the marginal propensity to consume
E) the required reserve ratio
answer
D
question
Commercial banks can create money by...
A) transferring depositors accounts at the federal reserve for conversion to cash
B) buying treasury bills from the federal reserve
C) sending vault cash to the federal reserve
D) maintaining a 100 percent reserve requirement
E) lending excess reserves to customers
A) transferring depositors accounts at the federal reserve for conversion to cash
B) buying treasury bills from the federal reserve
C) sending vault cash to the federal reserve
D) maintaining a 100 percent reserve requirement
E) lending excess reserves to customers
answer
E
question
The real value of the United States dollar is determined by
A) federal regulations regarding purchasing power
B) the value of good backing the dollar
C) the goods and services it will buy
D) the money multiplier
E) the marginal propensity to consume
A) federal regulations regarding purchasing power
B) the value of good backing the dollar
C) the goods and services it will buy
D) the money multiplier
E) the marginal propensity to consume
answer
C
question
Which of the following means of reducing military spending would have the greatest positive impact on GFP for the United States?
A) combining two domestic military bases into an overseas base
B) cutting retirement benefits of military personal
C) closing overseas military bases and relocating those operations to the United States
D) closing overseas military bases and laying off military personal
E) canceling contracts with domestic producers for new airplanes
A) combining two domestic military bases into an overseas base
B) cutting retirement benefits of military personal
C) closing overseas military bases and relocating those operations to the United States
D) closing overseas military bases and laying off military personal
E) canceling contracts with domestic producers for new airplanes
answer
C
question
According to the graph above (standard AD/AS curve), which of the following will necessarily result in a decrease of output?
I. A rightward shift of the AD curve
II. A leftward shift of the AD curve
III. A rightward shift of the AS curve
IV. A leftward shift of the AS curve
A) I only
B) III only
C) I and III only
D) II and III only
E) II and IV only
I. A rightward shift of the AD curve
II. A leftward shift of the AD curve
III. A rightward shift of the AS curve
IV. A leftward shift of the AS curve
A) I only
B) III only
C) I and III only
D) II and III only
E) II and IV only
answer
E
question
An increase in which of the following is most likely to cause an improvement in the standard of living over time?
A) size of the population
B) size of the labor force
C) number of banks
D) level of taxation
E) productivity of labor
A) size of the population
B) size of the labor force
C) number of banks
D) level of taxation
E) productivity of labor
answer
E
question
The consumer price index measures which of the following
A) the change over time of the weighted prices of a particular group of goods and services
B) the change over time of the weighted wholesale price index
C) the change over time of the difference between the GDP deflator and the wholesale price index
D) inflation corrected changed in the rGDP
E) inflation corrected for changes in the wholesale price index
A) the change over time of the weighted prices of a particular group of goods and services
B) the change over time of the weighted wholesale price index
C) the change over time of the difference between the GDP deflator and the wholesale price index
D) inflation corrected changed in the rGDP
E) inflation corrected for changes in the wholesale price index
answer
A
question
The circular flow of economic activity between consumers and producers includes which of the following?
I. Households buy factor services from firms
II. Households sell factor services to firms
III. Households buy outputs from firms
IV. Households sell outputs to firms
A) III only
B) IV only
C) I and II only
D) II and III only
E) III and IV only
I. Households buy factor services from firms
II. Households sell factor services to firms
III. Households buy outputs from firms
IV. Households sell outputs to firms
A) III only
B) IV only
C) I and II only
D) II and III only
E) III and IV only
answer
D
question
The table below indicates the number of labor hours requires in Countries X and Y to produce one unit of food or one unit of clothing.
Country, food, clothing,
X, 20 hours, 50 hours
Y, 10 hours, 20 hours
Given this information which of the following statements is correct?
A) X has comparative advantage in food and clothing
B) Y has a comparative advantage in food and clothing
C) X has comparative advantage in food, whereas Y has a comparative advantage in clothing
D) Y has comparative advantage in food, whereas X has a comparative advantage in clothing
E) neither country has a comparative advantage in the production of either good
Country, food, clothing,
X, 20 hours, 50 hours
Y, 10 hours, 20 hours
Given this information which of the following statements is correct?
A) X has comparative advantage in food and clothing
B) Y has a comparative advantage in food and clothing
C) X has comparative advantage in food, whereas Y has a comparative advantage in clothing
D) Y has comparative advantage in food, whereas X has a comparative advantage in clothing
E) neither country has a comparative advantage in the production of either good
answer
C
question
Which of the following groups of people would "benefit from unanticipated inflation?
I. Savers
II Borrowers
III. Lenders
A) I only
B) I only
C) II only
D) I and II only
E) I and II only
I. Savers
II Borrowers
III. Lenders
A) I only
B) I only
C) II only
D) I and II only
E) I and II only
answer
B
question
An increase in the labor force participation rate will
(A) increase investment and decrease savings
B) increase savings and decrease investment
C) have no effect on unemployment
D) make it easier to reduce unemployment
E) make 'it more difficult to reduce unemploymení
(A) increase investment and decrease savings
B) increase savings and decrease investment
C) have no effect on unemployment
D) make it easier to reduce unemployment
E) make 'it more difficult to reduce unemploymení
answer
E
question
All of the following are componets of the money supply the United States EXCEPT
A) paper money
B) gold bulliori
C) checkable deposits
D) coins
E) demand deposits
A) paper money
B) gold bulliori
C) checkable deposits
D) coins
E) demand deposits
answer
B
question
The value of which of the following is counted in the United States gross domestic product?
A) Clean air
B) Child
C) An automobile produced in Swden by a United States firm
D) A car produced in the United States and sold in Europe
E) Medical services not provided due to preventative bealth care
A) Clean air
B) Child
C) An automobile produced in Swden by a United States firm
D) A car produced in the United States and sold in Europe
E) Medical services not provided due to preventative bealth care
answer
D
question
Aggregate demand may be measured by adding
A) consumption, investment, savings, and imports
B) savings, government spending, and , business inventories
C) consumption, investment, government spending, and net exports.
D) domestic private expendifüres and government spending
E) domestic expenditures and imports
A) consumption, investment, savings, and imports
B) savings, government spending, and , business inventories
C) consumption, investment, government spending, and net exports.
D) domestic private expendifüres and government spending
E) domestic expenditures and imports
answer
C
question
The diagram below shows a linear production possibilities curve for a country.
If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?.
A) 0.5
В) 1
C) 5
D) 10
E) 20
If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?.
A) 0.5
В) 1
C) 5
D) 10
E) 20
answer
D
question
Comparative advantage implies that
A) no country sbould specialize completely in the production of any one goof
B) every country should try to export more than it imports
C) developing countries should import raw materials and export manufactoed goods
D) two countries sgould benefit from tade unless both have equal opportunity cots in every good
E) countries should impose their domestic industries tariffs to protect
A) no country sbould specialize completely in the production of any one goof
B) every country should try to export more than it imports
C) developing countries should import raw materials and export manufactoed goods
D) two countries sgould benefit from tade unless both have equal opportunity cots in every good
E) countries should impose their domestic industries tariffs to protect
answer
D
question
An industry historically used employees with specific skilis. If this industry experiences technological advances that require new skills, there will most likely be
A) cyclical unemployment
B) frictional unemployment
C) seasonal unemployment
D) structural unemployment
E) no change in unemployment
A) cyclical unemployment
B) frictional unemployment
C) seasonal unemployment
D) structural unemployment
E) no change in unemployment
answer
D
question
Which of the following would cause the official unemployment rate to understate the problem of unemployment?
A) Workers receiving unemployment compensation
B) Cyclically unemployed workers
C) Discouraged workers
D) Recent college graduates looking for work
E) Retirees
A) Workers receiving unemployment compensation
B) Cyclically unemployed workers
C) Discouraged workers
D) Recent college graduates looking for work
E) Retirees
answer
C
question
Which of the following individuals is classified as unemployed?
A) A fifteen-year-old high school student who is looking for a babysitting job
B) A laid-off computer programmer who has given up looking for a new job
C) A parent who works in an after-school day care center for 15 hours a week.
D) A recent college graduate who is looking for her first job
E) A mayor who lost an election and retired
A) A fifteen-year-old high school student who is looking for a babysitting job
B) A laid-off computer programmer who has given up looking for a new job
C) A parent who works in an after-school day care center for 15 hours a week.
D) A recent college graduate who is looking for her first job
E) A mayor who lost an election and retired
answer
D
question
In the measurement of gross domestic product, inveistment includes spending by
A) businesses on capital goods and changes in inventories
B) businesses on stocks, bonds, and other financial assets
C) individual households on stocks, bonds, and other financial assets
D) the federal government to purchase bonds issued by the Federal Reserve
E) the Federal Reserve to buy government bonds
A) businesses on capital goods and changes in inventories
B) businesses on stocks, bonds, and other financial assets
C) individual households on stocks, bonds, and other financial assets
D) the federal government to purchase bonds issued by the Federal Reserve
E) the Federal Reserve to buy government bonds
answer
A
question
Which of the following would best explain an inward shift of the production possibilities curve?
A) An increase in the labor-force participation rate
B) An increase in the rate of savings
C) A decrease in the quantity of inputs required to produce a unit of output
D) A decrease in the quality of human capital
E) A decrease in the govermment's budget deficit that leads to lower real interest rates
A) An increase in the labor-force participation rate
B) An increase in the rate of savings
C) A decrease in the quantity of inputs required to produce a unit of output
D) A decrease in the quality of human capital
E) A decrease in the govermment's budget deficit that leads to lower real interest rates
answer
D
question
If the nominal gross domestic product (GDP) of the nation of Hypothetica increased in 2007 relative to the previous year, it must be true that in Hypothetica in 2007
A) both the price level and the real GDP have increased
B) neither the price level nor the real GDP has increased
C) the price level increased by a larger percentage than did the real GDP
D) the price level increased by a smaller percentage than did the real GDP
E) the price level and/or the real GDP has increased
A) both the price level and the real GDP have increased
B) neither the price level nor the real GDP has increased
C) the price level increased by a larger percentage than did the real GDP
D) the price level increased by a smaller percentage than did the real GDP
E) the price level and/or the real GDP has increased
answer
E
question
Which of the following best describes human. capital?
A) The number of workers in the labor force
B) The physical capital used by workers
C) The financial assets owned by workers
D) The training and education of workers
E) The spending by business for worker recruitment
A) The number of workers in the labor force
B) The physical capital used by workers
C) The financial assets owned by workers
D) The training and education of workers
E) The spending by business for worker recruitment
answer
D
question
Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following?
A) The distribution of income
B) The value of services
C) The value of intermediate goods
D) The value of financial transactions and sales of used items
E) The value of government services
A) The distribution of income
B) The value of services
C) The value of intermediate goods
D) The value of financial transactions and sales of used items
E) The value of government services
answer
A
question
Which of the following is true of an economy with possibilities frontier shown above?
A) Point Q is attainable but undesirable.
B) Point R is unattainable but desirable.
C) A technological improvement in the production of watches would move the economy from point T to point P.
D) The opportunity cost of moving from point S to point T is the number of watches given up.
E) There is unemployment at point T because workers in the watch industry are without jobs.
A) Point Q is attainable but undesirable.
B) Point R is unattainable but desirable.
C) A technological improvement in the production of watches would move the economy from point T to point P.
D) The opportunity cost of moving from point S to point T is the number of watches given up.
E) There is unemployment at point T because workers in the watch industry are without jobs.
answer
D
question
An economy that is fully employing all its produc- tive resources but allocating less to investment than to consumption will be at which of the following positions on the production possibilities curve shown above?
A) A
В) В
C) C
D) D
E) E
A) A
В) В
C) C
D) D
E) E
answer
C
question
The United States government defines an individual as unemployed if the person
A) does not hold a paying job
B) has been recently fired
C) works part-time but needs full-time work
D) is without a job but is looking for work
E) wants a job but is not searching because he or she thỉnks none is available
A) does not hold a paying job
B) has been recently fired
C) works part-time but needs full-time work
D) is without a job but is looking for work
E) wants a job but is not searching because he or she thỉnks none is available
answer
D
question
Which of the following workers is most likely to be classified as structurally unemployed?
A) A high school teacher who is unemployed during the summer inonths
B) A recént college graduate who is looking for her first job
C) A teen-ager who is seeking part-time employ- ment at a fast-food restaurant
D) A worker who is unemployed because his skills. are obsolete
E) A woman who reenters the job market after her child begins elementary school
A) A high school teacher who is unemployed during the summer inonths
B) A recént college graduate who is looking for her first job
C) A teen-ager who is seeking part-time employ- ment at a fast-food restaurant
D) A worker who is unemployed because his skills. are obsolete
E) A woman who reenters the job market after her child begins elementary school
answer
D
question
What would be the effect of a large increase in labor productivity on the 'real gross domestic product and the price level?
Real Gross Domestic Product = Price Level
A) Increase Increase
B) Increase Decrease
C) No effect Increase
D) Decrease Increase
E) Decrease Decrease
Real Gross Domestic Product = Price Level
A) Increase Increase
B) Increase Decrease
C) No effect Increase
D) Decrease Increase
E) Decrease Decrease
answer
B
question
In an economy at full employment, a presidential candidate proposes cutting the governtnent debt in half in four years by increasing income tax rates and reducing government expenditures. According to Keynesian theory, implementation of these policies is most likelý to increase
A) unemployment
B) consumer prices
C) aggregate demand
D) aggrégate supply
E) the rate of economic growth
A) unemployment
B) consumer prices
C) aggregate demand
D) aggrégate supply
E) the rate of economic growth
answer
A
question
Suppose two countries are each capablé of indi- "vidually producing two given commodities. Instead, each specializes by producing the com- modity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result?
A) The two countries will become more independent of each other.
B) Unemployment will increase in oné country and decrease in the other
C) There will be more efficient production in one country but less efficient production in the other.
D) Both countries will become better off.
E) Both countries will be producing their commodity inefficiently.
A) The two countries will become more independent of each other.
B) Unemployment will increase in oné country and decrease in the other
C) There will be more efficient production in one country but less efficient production in the other.
D) Both countries will become better off.
E) Both countries will be producing their commodity inefficiently.
answer
D
question
Which of the following.will-result in the greatest increase in aggregate demand?
A) A $100 increase in taxes
B) A S100 decrease in taxes
C) A $100 increase in góvemment expenditures
D) A $100 increase in government expenditures, coupled with a $100 increase in taxes
E) A $100 increase in govermment expenditures, coupled with a $100 decréase in taxes
A) A $100 increase in taxes
B) A S100 decrease in taxes
C) A $100 increase in góvemment expenditures
D) A $100 increase in government expenditures, coupled with a $100 increase in taxes
E) A $100 increase in govermment expenditures, coupled with a $100 decréase in taxes
answer
E
question
An aggregate supply curve may.be horizontal over some range because within that range
A) a higher price level leads to higher interest rates, which reduce the money supply and consumer spending
B) changes in the aggregate price level do not induce substitution
C) output canhot be increased unless prices and interest rates increase
D) rigid prices prevent employment from fluctuating
E) resources are underemployed and an increase in demand will be satisfied without any pressure on the price level
A) a higher price level leads to higher interest rates, which reduce the money supply and consumer spending
B) changes in the aggregate price level do not induce substitution
C) output canhot be increased unless prices and interest rates increase
D) rigid prices prevent employment from fluctuating
E) resources are underemployed and an increase in demand will be satisfied without any pressure on the price level
answer
E
question
Which of the föllowing relationships is illustrated by a short-ruri Phillips curve?
A) A decrease in the rate of inflation is accompanied by an increase in the rate of economic growth
B) A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment.
C) An increase in the rate of inflation is accompanied by a decrease in the rate of economic growth.
D) An increase in the rate of inflation is accompanied by, an increase in the rate of unemployment.
E) A decrease in the raté of economic growth is accompanied by a decrease in the rate of unemployment:
A) A decrease in the rate of inflation is accompanied by an increase in the rate of economic growth
B) A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment.
C) An increase in the rate of inflation is accompanied by a decrease in the rate of economic growth.
D) An increase in the rate of inflation is accompanied by, an increase in the rate of unemployment.
E) A decrease in the raté of economic growth is accompanied by a decrease in the rate of unemployment:
answer
B
question
Which of the following transactions would represent an addition to a nation's current gross domestic product?
A) Ms. Smith purchases a share of stock in an automobile compány.
B) A retailer increases her stock of imported shoes.
C) The government increases its domestic purchases of food for use by the military.
D) A corporațion sells shoes from last year's inventory.
E) A mother sells her car to her daughter.
A) Ms. Smith purchases a share of stock in an automobile compány.
B) A retailer increases her stock of imported shoes.
C) The government increases its domestic purchases of food for use by the military.
D) A corporațion sells shoes from last year's inventory.
E) A mother sells her car to her daughter.
answer
C
question
An increase in energy costs will most likely cause ithe price level and real gross domestic product to change in which of the following ways?
Price Level Real Gross Domestic Product
A) Increase Increase
B) Increase Decrease
C) Increase Not change
D) Decrease Increase
E) Decrease Decrease
Price Level Real Gross Domestic Product
A) Increase Increase
B) Increase Decrease
C) Increase Not change
D) Decrease Increase
E) Decrease Decrease
answer
B
question
Which of the following is true according to the circular flow model?
A) Firms are suppliers in both the product and factor markets.
B) Firms are demanders in the product markets and suppliers in the factor markets.
C) Households are demanders in both the product and factor markets.
D) Households are demanders in the product markets and suppliers in the factor markets.
E) The government is a demander in the product market only.
A) Firms are suppliers in both the product and factor markets.
B) Firms are demanders in the product markets and suppliers in the factor markets.
C) Households are demanders in both the product and factor markets.
D) Households are demanders in the product markets and suppliers in the factor markets.
E) The government is a demander in the product market only.
answer
D
question
A contractionary supply shock would most likely result in
A) an increase in aggregate demand
B) an increase in national income domestic product
C) an increase in gross
D) a decrease in the general price level
E) a decrease in employment
A) an increase in aggregate demand
B) an increase in national income domestic product
C) an increase in gross
D) a decrease in the general price level
E) a decrease in employment
answer
E
question
On the basis of the diagram above showing an economy's production possibilities curve for two goods, which of the following statements must be true?
I. The opportunity cost of moving from point P to point R is 10 units of Y.
II. The opportunity cost of moving from point R to point P is 8 units of X.
III. The opportunity cost of moving from point Q to point R is 0 units of Y.
A) I only
B) III only
C) I and II only
D) II and III only
E) I, II, and III
I. The opportunity cost of moving from point P to point R is 10 units of Y.
II. The opportunity cost of moving from point R to point P is 8 units of X.
III. The opportunity cost of moving from point Q to point R is 0 units of Y.
A) I only
B) III only
C) I and II only
D) II and III only
E) I, II, and III
answer
E
question
The official unemployment rate is not an accurate indicator of actual unemployment in the economy because
A) structural unemployment is greater than cyclical unemployment at the going wage rate
B) full employment is greater than natural unemployment
C) the unemployment rate is less than natural "unemployment
D) the official rate does not include persons who bave given up looking for work
E) the official rate does not reflect the number of people receiving unemployment compensation
A) structural unemployment is greater than cyclical unemployment at the going wage rate
B) full employment is greater than natural unemployment
C) the unemployment rate is less than natural "unemployment
D) the official rate does not include persons who bave given up looking for work
E) the official rate does not reflect the number of people receiving unemployment compensation
answer
D
question
The value of the spending multiplier decreases when
A) tax rates are reduced
B) exports decline
C) imports decline
D) government spending increases
E) the marginal propensity to save increases
A) tax rates are reduced
B) exports decline
C) imports decline
D) government spending increases
E) the marginal propensity to save increases
answer
E
question
As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements?
I. Allocation of domestic resources
II. Standard of living
III. Self-sufficiency
A) I only
B) II only
C) II only
D) I and II only
E) I, II, and III
I. Allocation of domestic resources
II. Standard of living
III. Self-sufficiency
A) I only
B) II only
C) II only
D) I and II only
E) I, II, and III
answer
D
question
As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in
A) the production of military goods
B) the production of antipollution devices
C) crime prevention services
D) household production
E) legal services
A) the production of military goods
B) the production of antipollution devices
C) crime prevention services
D) household production
E) legal services
answer
D
question
If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has
A) approximately decreased by 10%
B) approximately decreased by 20%
C) approximately increased by 10%
D) approximately increased by 20%
E) not changed
A) approximately decreased by 10%
B) approximately decreased by 20%
C) approximately increased by 10%
D) approximately increased by 20%
E) not changed
answer
C
question
According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by
A) higher labor-force participation
B) an increase in inflation
C) an increase in the productivity of capital
D) an increase in the government deficit
E) a decrease in real gross domestic product
A) higher labor-force participation
B) an increase in inflation
C) an increase in the productivity of capital
D) an increase in the government deficit
E) a decrease in real gross domestic product
answer
B
question
Which of the following statements about the simple circular flow model of a market economy is correct?
A) Households are on the demand side of the product market and the supply side of the resource market.
B) Business firms are on the supply side of both the product market and the resource market.
C) Households receive income in the form of wages, and business firms receive income in the form of investment.
D) Exports and investment expenditures are examples of leakage from the circular flow, whereas imports and savings are injections.
E) Circular flow models are used primarily to explain why money is necessary in any economic system.
A) Households are on the demand side of the product market and the supply side of the resource market.
B) Business firms are on the supply side of both the product market and the resource market.
C) Households receive income in the form of wages, and business firms receive income in the form of investment.
D) Exports and investment expenditures are examples of leakage from the circular flow, whereas imports and savings are injections.
E) Circular flow models are used primarily to explain why money is necessary in any economic system.
answer
A
question
Which of the following is true of a horizontal aggregate supply curve?
A) It is the usual assumption made by classical economists analyzing the long run.
B) It suggests that increases in output can occur without increases in price lèveis.
C) It suggests that a shift in the aggregate demand curve will lead to a change in the price level.
D) It is likely to occur only in highly industrialized economies.
E) It cannot shift, therefore output remains cónstant.
A) It is the usual assumption made by classical economists analyzing the long run.
B) It suggests that increases in output can occur without increases in price lèveis.
C) It suggests that a shift in the aggregate demand curve will lead to a change in the price level.
D) It is likely to occur only in highly industrialized economies.
E) It cannot shift, therefore output remains cónstant.
answer
B
question
Which of the following government adopts an annually will most likely occur if a balanced budget rule that requires the government to eliminate any deficits or surpluses?
A) Unemployment will be eliminated and prices will be stabie
B) The national debt will increase.
C) Business cycles wili become more stable.
D) The automatic stabilizing effect of fiscal policy will be eliminated.
E) The government when there are surpluses. will be forced to spend less
A) Unemployment will be eliminated and prices will be stabie
B) The national debt will increase.
C) Business cycles wili become more stable.
D) The automatic stabilizing effect of fiscal policy will be eliminated.
E) The government when there are surpluses. will be forced to spend less
answer
D
question
Which of the following is true of the long-run Phillips curve?
A) It shows there is a trade-off between unemployment and inflation.
B) It is positively sloped when the inflation rate exceeds the unemployment rate.
C) It is vertical at the natural rate of unemployment.
D) It shifts to the right if aggregate demand increases.
E) It is created by an adverse supply shock.
A) It shows there is a trade-off between unemployment and inflation.
B) It is positively sloped when the inflation rate exceeds the unemployment rate.
C) It is vertical at the natural rate of unemployment.
D) It shifts to the right if aggregate demand increases.
E) It is created by an adverse supply shock.
answer
C
question
Stagflation is caused by
A) an increase in imports
B) an increase in aggregate demand
C) a decrease in aggregate demand
D) a decrease in aggregate supply
E) an increase in aggregate supply
A) an increase in imports
B) an increase in aggregate demand
C) a decrease in aggregate demand
D) a decrease in aggregate supply
E) an increase in aggregate supply
answer
D
question
According to the short-run Phillips Curve, there is a trade-off between
A) interest rates and inflation
B) the growth of the money supply and interest rates
C) unemployment and economic growth
D) inflation and unemployment
E) economic growth and interest rates
A) interest rates and inflation
B) the growth of the money supply and interest rates
C) unemployment and economic growth
D) inflation and unemployment
E) economic growth and interest rates
answer
D
question
A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output?
Price Level Output
A) Decrease No effect
B) Decrease Increase
C) Increase Increase
D) Increase Decrease
E) No effect No effect
Price Level Output
A) Decrease No effect
B) Decrease Increase
C) Increase Increase
D) Increase Decrease
E) No effect No effect
answer
B
question
According to the long-run Philips curve, which of i the following is true?
A) Unemployment increases with an increase in inflation.
B) Unemployment decreases with an increase in inflation.
C) Increased automation will lead to lower levels of structural unemployment in the long run.
D) Changes in the composition of the overall demand for labor tend to be deflationary in the long run.
E) The natural rate of unemployment is indepen- dent of monctary and fiscal policy changes that affect aggregate demand.
A) Unemployment increases with an increase in inflation.
B) Unemployment decreases with an increase in inflation.
C) Increased automation will lead to lower levels of structural unemployment in the long run.
D) Changes in the composition of the overall demand for labor tend to be deflationary in the long run.
E) The natural rate of unemployment is indepen- dent of monctary and fiscal policy changes that affect aggregate demand.
answer
E
question
A change in which of the following will cause the short-run aggregate supply curve to shift?
I. The price level
II. Government spending
III. The cost of all inputs
A) I only
В) II only
C) III only
D) I and II only
E) I, II, and II
I. The price level
II. Government spending
III. The cost of all inputs
A) I only
В) II only
C) III only
D) I and II only
E) I, II, and II
answer
C
question
Assume that for consumers, pears and apples are substitutes. It is announced that pesticides used on most apples may be dangerous to consumers' health. As a result of this announcement, which of the following market changes is most likely to occur in the short run in the pear market?
answer
(Answers are graphs so not included) D
question
If AD and AS represent aggregate demand and aggregate supply curves, respectively, and the arrows indicate the movement of the curves, which of the following graphs best illustrates long-run economic growth?
answer
(Answers are graphs so not included) D
question
Which of the following is included in the computation of gross domestic product?
A) Govermment transfer payments, such as unemployment benefits
B) Purchases of used goods, such as used cars
C) Child care tasks performed by househusbands
D) Total value of business inventories
E) Additions to business inventories
A) Govermment transfer payments, such as unemployment benefits
B) Purchases of used goods, such as used cars
C) Child care tasks performed by househusbands
D) Total value of business inventories
E) Additions to business inventories
answer
E
question
The aggregate demand curve is dowaward sloping because as the price level increases the
A) purchasing power of wealth đecreases
B) demand for imports decreases
C) demand for interest-sensitive expenditures increases
D) demand for domestically produced substitute goods increases
E) real value of fixed assets increases
A) purchasing power of wealth đecreases
B) demand for imports decreases
C) demand for interest-sensitive expenditures increases
D) demand for domestically produced substitute goods increases
E) real value of fixed assets increases
answer
A
question
If an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the
A) real level of output
B) price level
C) interest rate
D) unemployment rate
E) government's budget deficit
A) real level of output
B) price level
C) interest rate
D) unemployment rate
E) government's budget deficit
answer
D
question
An increase in which of the following is consistent with an outward shift of the production possibilities curve?
A) Transfer payments
B) Aggregate demand
C) Long-run aggregate supply
D) Income tax rates
E) Exports
A) Transfer payments
B) Aggregate demand
C) Long-run aggregate supply
D) Income tax rates
E) Exports
answer
C
question
An unanticipated when the economy is in equilibrium will result in decrease in aggregate demand
A) a decrease in voluntary unemployment
B) a decrease in the natural rate of unemployment
C) a decrease in aggregate supply
D) an increase in unplanned inventories
E) an increase in the rate of inflation
A) a decrease in voluntary unemployment
B) a decrease in the natural rate of unemployment
C) a decrease in aggregate supply
D) an increase in unplanned inventories
E) an increase in the rate of inflation
answer
D
question
Which of the following will occur as a result of an improvement in technology?
A) The aggregate demand curve will shift to the right.
B) The aggregate demand curve will shift to the left.
C) The aggregate supply curve will shift to the right.
D) The aggregate supply curve will shift to the left.
E) The production possibilities curve will shift inward.
A) The aggregate demand curve will shift to the right.
B) The aggregate demand curve will shift to the left.
C) The aggregate supply curve will shift to the right.
D) The aggregate supply curve will shift to the left.
E) The production possibilities curve will shift inward.
answer
C
question
In the circular flow diagram, which of the following is true?
A) Businesses to households pay wages, rent, interest, and profits in return for use of factors of production.
B) Businesses purchase goods and services from households in return for money payments.
C) Households pay wages, rent, interest, and profits to businesses in returm for use of factors of production.
D) The relationship between households and businesses exists only in a traditional society.
E) The relationship houscholds and businesses exists between only in a command economy.
A) Businesses to households pay wages, rent, interest, and profits in return for use of factors of production.
B) Businesses purchase goods and services from households in return for money payments.
C) Households pay wages, rent, interest, and profits to businesses in returm for use of factors of production.
D) The relationship between households and businesses exists only in a traditional society.
E) The relationship houscholds and businesses exists between only in a command economy.
answer
A
question
Which of the following is an example ment" as the term is used by economists?
A) A schoolteacher purchases 10,000 shares of stock in an automobile company.
B) Newlyweds purchase a previously owned home.
C) One large automobile firm purchases another large automobile firm.
D) A farmer purchases $10,000 worth of government securities.
E) An apparel company purchases 15 new sewing machines.
A) A schoolteacher purchases 10,000 shares of stock in an automobile company.
B) Newlyweds purchase a previously owned home.
C) One large automobile firm purchases another large automobile firm.
D) A farmer purchases $10,000 worth of government securities.
E) An apparel company purchases 15 new sewing machines.
answer
E
question
Unexpected increases in inventories usually precede
A) increases in inflation
B) increases in imports
C) stagflation
D) decreases in production
E) decreases in unemployment
A) increases in inflation
B) increases in imports
C) stagflation
D) decreases in production
E) decreases in unemployment
answer
D
question
The short-run aggregate supply curve is likely to. shift to the left when there is an increase in
A) the cost of productive resources
B) productivity
C) the money supply
D) the federal budget deficit
E) imports
A) the cost of productive resources
B) productivity
C) the money supply
D) the federal budget deficit
E) imports
answer
A
question
In a closed economy with po taxes in which the average propensity to consume is 0.75, which of the following is true?
A) If income is $100, then saving is $75.
B) If income is $100, then consumption is $50.
C) If income is $200, then saving is $50.
D) If income is $200, then consumption is S75.
E) If income is $500, then saving is $100.
A) If income is $100, then saving is $75.
B) If income is $100, then consumption is $50.
C) If income is $200, then saving is $50.
D) If income is $200, then consumption is S75.
E) If income is $500, then saving is $100.
answer
C
question
Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?
A) Mary Jane has a comparative advantage in law so she should specialize in law and hire a Carpenter to make her cabinets.
B) Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law.
C) Mary Jane is three times faster than any carpenter so she should give up her law practice to become a carpenter.
D) When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour.
E) Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per bour.
A) Mary Jane has a comparative advantage in law so she should specialize in law and hire a Carpenter to make her cabinets.
B) Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law.
C) Mary Jane is three times faster than any carpenter so she should give up her law practice to become a carpenter.
D) When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour.
E) Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per bour.
answer
A
question
The intersection and the aggregate of the aggregate supply curve demand curve occurs at the economy's equilibrium level of
A) real investment and the interest rate
B) real disposable income and unemployment
C) real national output and the price level
D) government expenditures and taxes
E) imports and exports
A) real investment and the interest rate
B) real disposable income and unemployment
C) real national output and the price level
D) government expenditures and taxes
E) imports and exports
answer
C
question
Which of the following changes in the aggregate demand and aggregate supply curves is likely to result in stagflation?
A) The aggregate demand curve shifts to the left when the economy is in the classical range of the aggregate supply.curve.
B) The aggregate demand curve shifts to the right when the economy is in the classical range of the aggregate supply curve.
C) The aggregate demand curve shifts to the right when the economy is in the Keynesian range of the aggregate supply curve.
D) The aggregate supply curve shifts to the left.
E) The aggregate supply curve shifts to the right.
A) The aggregate demand curve shifts to the left when the economy is in the classical range of the aggregate supply.curve.
B) The aggregate demand curve shifts to the right when the economy is in the classical range of the aggregate supply curve.
C) The aggregate demand curve shifts to the right when the economy is in the Keynesian range of the aggregate supply curve.
D) The aggregate supply curve shifts to the left.
E) The aggregate supply curve shifts to the right.
answer
D
question
Which of the following is true if the economy is producing at the full-employment level of output?
A) The unemployment rate is zero.
B) No person is receiving unemployment compensation from the government.
C) There is frictional unemployment.
D) The govemment's budget is balanced.
E) The balance of trade is in equilibrium.
A) The unemployment rate is zero.
B) No person is receiving unemployment compensation from the government.
C) There is frictional unemployment.
D) The govemment's budget is balanced.
E) The balance of trade is in equilibrium.
answer
C
question
Which of the following will most likely result from a decrease in government spending?
A) An increase in output
B) An increase in the price level
C) An increase in employment
D) A decrease in aggregate supply
E) A decreașe in aggregate demand
A) An increase in output
B) An increase in the price level
C) An increase in employment
D) A decrease in aggregate supply
E) A decreașe in aggregate demand
answer
E
question
Suppose that, from 1985 to 1986, unemployment fell from 7.2 to 7.0 percent and inflation fell from 3.8 to 1.1 percent. An explanation of these changes might be that
A) aggregate demand curve shifted to the left
B) aggregate demand curve shifted to the right
C) aggregate supply curve shifted to he left
D) aggregate supply curve shifted to the right
E) short-run Phillips curve shifted to the right
A) aggregate demand curve shifted to the left
B) aggregate demand curve shifted to the right
C) aggregate supply curve shifted to he left
D) aggregate supply curve shifted to the right
E) short-run Phillips curve shifted to the right
answer
D
question
If the reserve requirement is 20 percent, the existence of $100 worth of excess reserves in the banking systen can-lead to a maximum expansion of the money supply equal to
A) $20
B) $100
C) $300
D) $500
E) $750
A) $20
B) $100
C) $300
D) $500
E) $750
answer
D
question
If the Federal Reserve lowers the reserve requirement, which of the following would most likely occur?
A) Imports will rise, decreasing the trade, deficit.
B) The rate of saving will increase.
C) Unemployment and inflation will both ihcrease.
D) Businesses will purchase more factories and équipment.
E) The budget deficit will increase.
A) Imports will rise, decreasing the trade, deficit.
B) The rate of saving will increase.
C) Unemployment and inflation will both ihcrease.
D) Businesses will purchase more factories and équipment.
E) The budget deficit will increase.
answer
D
question
The demand for money increases when national income increases because
A) spending on goods and services increases
B) interest rates increase
C) the budget deficit increases
D) the money supply increases
E) the public becomes more optimistic about the future
A) spending on goods and services increases
B) interest rates increase
C) the budget deficit increases
D) the money supply increases
E) the public becomes more optimistic about the future
answer
A
question
If the public's desire to hold money as currency what will the impact be on the banking system?
A) Banks would be more able to reduce unemployment.
B) Banks would be more able to decrease aggregate supply.
C) Banks would be less able to decrease aggregate supply:
D) Banks would be more able to expand credit.
E) Banks would be less able to expand credit.
A) Banks would be more able to reduce unemployment.
B) Banks would be more able to decrease aggregate supply.
C) Banks would be less able to decrease aggregate supply:
D) Banks would be more able to expand credit.
E) Banks would be less able to expand credit.
answer
E
question
Which of the following will most likely occur in an economy if more money is deinanded than is supplied?
A) The amount of investment spending will increase.
B) Interest rates will decrease.
C) Interest rates will increase.
D) The demand curve for money will shift to the left.
E) The demand curve for money will shift to the right.
A) The amount of investment spending will increase.
B) Interest rates will decrease.
C) Interest rates will increase.
D) The demand curve for money will shift to the left.
E) The demand curve for money will shift to the right.
answer
C
question
If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be
A) 5%
B) 15%
C) 25%
D) 35%
E) 45%
A) 5%
B) 15%
C) 25%
D) 35%
E) 45%
answer
B
question
The Federal Reserve can increase the money supply by
A) selling gold reserves to the banks
B) selling foreign currency holdings
C) buying government bonds on the open market
D) buying gold from foreign central banks
E) borrowing reserves from foreign governments
A) selling gold reserves to the banks
B) selling foreign currency holdings
C) buying government bonds on the open market
D) buying gold from foreign central banks
E) borrowing reserves from foreign governments
answer
C
question
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes?
A) Transactions
B) Unforeseen expenditures
C) Speculation
D) Iliquidity
E) Exchange
A) Transactions
B) Unforeseen expenditures
C) Speculation
D) Iliquidity
E) Exchange
answer
C
question
An increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?
Real Interest Rates Real Output
A) Decrease Decrease
B) Decrease Increase
C) Increase Decrease
D) Increase No change
E) No change Increase
Real Interest Rates Real Output
A) Decrease Decrease
B) Decrease Increase
C) Increase Decrease
D) Increase No change
E) No change Increase
answer
B
question
The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when
A) interest rates are high
B) the velocity of money is rising
C) people hold a portion of their money in the form of currency
D) the unemployment rate is low
E) the government's budget is in deficit
A) interest rates are high
B) the velocity of money is rising
C) people hold a portion of their money in the form of currency
D) the unemployment rate is low
E) the government's budget is in deficit
answer
C
question
Under which of the following conditions would a restrictive monetary policy be most appropriate?
A) High inflation
B) High unemployment
C) Full employment with stable prices
D) Low interest rates
E) A budget deficit
A) High inflation
B) High unemployment
C) Full employment with stable prices
D) Low interest rates
E) A budget deficit
answer
A
question
A major advantage of automatic stabilizers in fiscal policy is that they
A) reduce the public debt
B) increase the possibility of a balanced budget
C) stabilize the unemployment rate
D) go into effect without passage of new legislation
E) automatically reduce the inflation rate
A) reduce the public debt
B) increase the possibility of a balanced budget
C) stabilize the unemployment rate
D) go into effect without passage of new legislation
E) automatically reduce the inflation rate
answer
D
question
The major difference between real and nominal gross domestic product (GDP) is that real GDP
A) excludes government transfer payments
B) excludes imports
C) is adjusted for price-level changes using a price index
D) measures only the value of final goods and services that are consumed
E) measures the prices of a market basket of goods purchased by a typical urban consumer
A) excludes government transfer payments
B) excludes imports
C) is adjusted for price-level changes using a price index
D) measures only the value of final goods and services that are consumed
E) measures the prices of a market basket of goods purchased by a typical urban consumer
answer
C
question
Under which of the following conditions would consumer spending most likely increase?
A) Consumers have large unpaid balances on their credit cards.
B) Consumers' wealth is increased by changes in the stock market.
C) The govermment encourages consumers to increase their savings.
D) Social security taxes are increased.
E) Consumers believe they will not receive pay increases next year.
A) Consumers have large unpaid balances on their credit cards.
B) Consumers' wealth is increased by changes in the stock market.
C) The govermment encourages consumers to increase their savings.
D) Social security taxes are increased.
E) Consumers believe they will not receive pay increases next year.
answer
B
question
Under a fractional reserve banking system, banks are required to
A) keep part of their demand deposits as reserves
B) expand the money supply when requested by the central bank
C) insure their deposits against losses and bank runs
D) pay a fraction of their interest income in taxes
E) charge the same interest rate on all their loans
A) keep part of their demand deposits as reserves
B) expand the money supply when requested by the central bank
C) insure their deposits against losses and bank runs
D) pay a fraction of their interest income in taxes
E) charge the same interest rate on all their loans
answer
A
question
securities When the Federal Reserve buys government on the open market, which of the following will decrease in the short run?
A) Interest rates
В) Тахes
C) Investment
D) The amount of money loaned by banks
E) The money supply
A) Interest rates
В) Тахes
C) Investment
D) The amount of money loaned by banks
E) The money supply
answer
A
question
If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000?
A) $100,000
B) $90,333
C) $10,000
D) $9,000
E) $1,000
A) $100,000
B) $90,333
C) $10,000
D) $9,000
E) $1,000
answer
D
question
When a central bank sells securities in the open market, which of the following set of events is most likely to follow?
A) An increase in the money supply, a decrease in interest rates, and an increase in aggregate demand
B) An increase in the money supply, an increase in interest rates, and a decrease in aggregate demand
C) An increase in interest rates, an increase in the government budget deficit, and a movement toward trade surplus
D) A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand
E) A decrease in the money supply, a decrease in interest rates, and a decrease in aggregate demand
A) An increase in the money supply, a decrease in interest rates, and an increase in aggregate demand
B) An increase in the money supply, an increase in interest rates, and a decrease in aggregate demand
C) An increase in interest rates, an increase in the government budget deficit, and a movement toward trade surplus
D) A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand
E) A decrease in the money supply, a decrease in interest rates, and a decrease in aggregate demand
answer
D
question
In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is
A) 14%
B) 10%
C) 6%
D) 4%
E) 2.5%
A) 14%
B) 10%
C) 6%
D) 4%
E) 2.5%
answer
C
question
If investors feel that business conditions will deteriorate in the future, the demand for loans and real interest rate in the Joanable funds market will change in which of the following ways in the short run?
Demand for Loans Real Interest Rate
A) Increase Increase
B) Increase Decrease
C) Decrease Increase
D) Decrease Decrease
E) Decrease Not change
Demand for Loans Real Interest Rate
A) Increase Increase
B) Increase Decrease
C) Decrease Increase
D) Decrease Decrease
E) Decrease Not change
answer
D
question
Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A $1 million increase in new reserves will result in
A) an increase in the money supply of $5 million
B) an increase in the money supply of less than $5 million
C) a decrease in the money supply of $1 million
D) a decrease in the money supply of $5 million
E) a decrease in the fmoney supply of more than $5 million
A) an increase in the money supply of $5 million
B) an increase in the money supply of less than $5 million
C) a decrease in the money supply of $1 million
D) a decrease in the money supply of $5 million
E) a decrease in the fmoney supply of more than $5 million
answer
B
question
The Federal Reserve can cause an increase in interest rates in an attempt to
A) reduce inflation
B) reduce cyclical unemployment
C) reduce structural unemployment
D) increase aggregate demand
E) increase investment spending
A) reduce inflation
B) reduce cyclical unemployment
C) reduce structural unemployment
D) increase aggregate demand
E) increase investment spending
answer
A
question
Which of the following is most likely to occur when the Federal Reserve buys govemment bonds on the open market?
A) The demand for money will decrease.
B) The governments debt will decrease
C) Inferest rates will decrease.
D) The discount rate will increase.
E) Investment demand will decrease.
A) The demand for money will decrease.
B) The governments debt will decrease
C) Inferest rates will decrease.
D) The discount rate will increase.
E) Investment demand will decrease.
answer
C
question
Which of the following actions by the Federal Reserve reduces the ability of the banking system to create money?
A) Decreasing the federal funds rate
B) Decreasing the discount rate
C) Increasing the money supply
D) Increasing the reserve requirement
E) Buying govemment bonds on the open market
A) Decreasing the federal funds rate
B) Decreasing the discount rate
C) Increasing the money supply
D) Increasing the reserve requirement
E) Buying govemment bonds on the open market
answer
D
question
Which of the following would be included as a liability on a commercial bank's balance sheet?
A) Consumer loans
B) Demand deposits
C) Net worth
D) Bank reserves
E) Treasury bonds
A) Consumer loans
B) Demand deposits
C) Net worth
D) Bank reserves
E) Treasury bonds
answer
B
question
Which of the following is truc of the quantity of money demanded?
A) It rises when interest rates rise, because the return from bolding money increases.
B) It falls when interest rates rise, because the opportunity cost of holding money increases.
C) It remains constant when interest rates rise, as long as inflation remains constant.
D) It rises when interest rates rise, as long as inflation is declining.
E) It falls when the money supply increases, as long as inflation remains constant.
A) It rises when interest rates rise, because the return from bolding money increases.
B) It falls when interest rates rise, because the opportunity cost of holding money increases.
C) It remains constant when interest rates rise, as long as inflation remains constant.
D) It rises when interest rates rise, as long as inflation is declining.
E) It falls when the money supply increases, as long as inflation remains constant.
answer
B
question
If the Federal Reserve pursues a contractionary monetary policy, output'and the price level will change in which of the following ways in the short run?
Output Price Level
A) Increase Increase
B) Increase No change
C) Increase Decrease
D) Decrease Decrease
E) Decrease Increase
Output Price Level
A) Increase Increase
B) Increase No change
C) Increase Decrease
D) Decrease Decrease
E) Decrease Increase
answer
D
question
The required reserve ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply?
A) An increase of $1 million
B) An increase of $1.2 million
C) An increase of $5 million
D) A decrease of $1.2 million
E) A decrease of $5 million
A) An increase of $1 million
B) An increase of $1.2 million
C) An increase of $5 million
D) A decrease of $1.2 million
E) A decrease of $5 million
answer
E
question
If the Federal Reserve lowers the reserve requirement, which of the following is most likely to happen to interest rates and gross national product?
Interest Rates Gross National Product
A) Increase Decrease
B) Increase Increase
C) Decrease Decrease
D) Decrease Increase
E) No change No change
Interest Rates Gross National Product
A) Increase Decrease
B) Increase Increase
C) Decrease Decrease
D) Decrease Increase
E) No change No change
answer
D
question
If the nominal interest rate is 6 percent and the expected inflation rate is 4 percent, the real interest rate is
A) 10 percent
B) 6 percent
C) 4 percent
D) 2 percent
E) -2 percent
A) 10 percent
B) 6 percent
C) 4 percent
D) 2 percent
E) -2 percent
answer
D
question
The purchase of securities on the open market by the Federal Reserve will
A) increase the supply of money
B) increase the interest rate
C) increase the discount rate
D) decrease the number of Federal Reserve notes in circulation
E) decrease the reserve requirement
A) increase the supply of money
B) increase the interest rate
C) increase the discount rate
D) decrease the number of Federal Reserve notes in circulation
E) decrease the reserve requirement
answer
A
question
If a banking system's reserves are $100 billion, demand deposits are $500 billion, and the system is fully loaned-up, then the reserve requirement must be
A) 10 percent
B) 12.5 percent
C) 16.6 percent
D) 20 percent
E) 25 percent
A) 10 percent
B) 12.5 percent
C) 16.6 percent
D) 20 percent
E) 25 percent
answer
D
question
Assume that the reserve requirement is 25 percent. If banks have excess reserves of $10,000, which of the following is the maximum amount of additional money that can be created by the banking system through the lending process?
A) $2,500
B) $10,000
C) $40,000
D) $50,000
E) $250,000
A) $2,500
B) $10,000
C) $40,000
D) $50,000
E) $250,000
answer
C
question
Expansionary fiscal policy will be most effective when
A) the aggregate supply curve is horizontal
B) the economy is at or above full-employment output
C) transfer payments are decreased, while taxes remain unchanged
D) wages and prices are very flexible
E) the Federal Reserve simultancously increases the reserve requirement
A) the aggregate supply curve is horizontal
B) the economy is at or above full-employment output
C) transfer payments are decreased, while taxes remain unchanged
D) wages and prices are very flexible
E) the Federal Reserve simultancously increases the reserve requirement
answer
A
question
To counteract a recession, the Federal Reserve should
A) buy securities on the open market and raise the reserve requirement
B) buy securites on the open market and lower the reserve requirement
C) buy securites on the open market and raise the discount rate
D) sell securities on the open market and raise the discount rate
E) raise the reserve requirement and lower the discount rate
A) buy securities on the open market and raise the reserve requirement
B) buy securites on the open market and lower the reserve requirement
C) buy securites on the open market and raise the discount rate
D) sell securities on the open market and raise the discount rate
E) raise the reserve requirement and lower the discount rate
answer
B
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