question
Brazil is the world's largest grower of coffee beans. If a severe drought in Brazil destroys much of the coffee bean crop, what effects should we expect in the markets for coffee and tea (assuming tea and coffee are substitutes)?
answer
We expect the price of coffee to rise and the quantity to fall, and the price of tea to rise and quantity to rise
question
Suppose that a market was in equilibrium and then both price and quantity increased. According to demand-supply analysis, which of the following can we say did not happen?
answer
Demand decreased while supply increased
question
Many things that society values, such as good health, high-quality education, the enjoyment of time spent with friends, and personal freedom are not directly captured in GDP. Which statement is most accurate?
answer
Societies with higher GDP per capita also tend to do better on other indicators of well-being.
question
Suppose a law is passed that milk can only be sold at $1.50 per gallon. Afterwards, consumers find that when they go to stores there is often no milk available. From demand-supply analysis we would conclude that
answer
the $1.50 price is below the natural market equilibrium and has created a shortage of milk.
question
Most economists believe that government can sometimes
answer
correct market failures that reduce economic efficiency
AND
Take action that leads to more equitable outcomes in the economy
AND
Take action that leads to more equitable outcomes in the economy
question
Supply curves usually slope upward because
answer
an increase in price gives producers an incentive to supply a larger quantity
question
The statement "if the US reduces imports its GDP will increase" is an example of
answer
a positive statement
question
Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is
answer
the enjoyment he would have received if he had watched TV with his friends
question
In 2016, a farmer grows and sells $4 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $9 million worth of cereal in 2016, with sales to households during the year of $8 million. The unsold $1 million worth of cereal remains in Big Flakes Cereal Company's inventory at the end of 2016. The activities just described contribute how much to GDP for 2016?
answer
9 million
question
The price of good X increases and as a result, the demand for good Y decreases. The two goods are
answer
complements
question
Tom buys a car for $4,000, planning to spend $1,000 on repairs and then sell the car for $5,300. After those repairs he discovers that it needs an additional $600 of work to sell for $5,300. He could also sell it now for $4,800. What should he do?
answer
He should keep the car if it is worth more than $4,800 to him in its current condition, otherwise he should sell it now.
question
Consumption 800
Intest 300
Gov purchases 400
Taxes 500
Transfer payments 200
Exports 250
imports 300
GDP for this economy equals
Intest 300
Gov purchases 400
Taxes 500
Transfer payments 200
Exports 250
imports 300
GDP for this economy equals
answer
$1450
question
Which of the following is not true about most economic models?
a. They involve mathematical or graphical representations of economic relationships
b. They are built on the assumption that people behave rationally
c. Economists always prefer more complex models to simpler ones
d. They are often used to predict the effects of policy changes
a. They involve mathematical or graphical representations of economic relationships
b. They are built on the assumption that people behave rationally
c. Economists always prefer more complex models to simpler ones
d. They are often used to predict the effects of policy changes
answer
C
question
In 2010 the nominal GDP of a country was $450 and the real GDP was $300. The base year was 2005. What must be true?
answer
The value of the GDP deflator in 2010 was 150
question
At the grocery store, Sally sees that oranges are $2.00 per pound but if you buy at least 3 pounds the price for your entire purchase is $1.50 per pound. She was planning to buy 2 pounds. She should
answer
buy a third pound as long as it is worth at least $.50 to her
question
Which of the following transactions is included in the GDP of the United States?
a. Coca Cola (a US company) produces soft drinks in England.
b. Honda (a Japanese company) produces cars in Ohio.
c. McDonalds (a US company) produces and sells hamburgers in Russia.
d. Ford (a US company) produces cars in Mexico.
e. All of the above.
a. Coca Cola (a US company) produces soft drinks in England.
b. Honda (a Japanese company) produces cars in Ohio.
c. McDonalds (a US company) produces and sells hamburgers in Russia.
d. Ford (a US company) produces cars in Mexico.
e. All of the above.
answer
B. Honda (a Japanese company) producers cars in Ohio
question
The phrase "an increase in quantity demanded"
answer
Describes a movement downward and to the right along a demand curve
question
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
answer
Increased measured GDP by the value added by the restaurant's preparation and serving of the meals
question
Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is
answer
Included in US GDP, but it is not included in US GNP
question
Value added for a firm equals its revenue from sales minus
answer
what it pays for intermediate goods
question
Are government transfer payments, such as social security checks, part of the G component of GDP?
answer
No, because they are not payments for currently produced goods or services
question
If a country Panem is operating at a point inside its PPF, we can conclude that
answer
It has high unemployment or inefficiently employed resources
question
A survey finds that those who exercise more minutes per week have fewer doctor visits due to illness annually. Assuming these findings are accurate, should they be interpreted as strong evidence of how exercise improves health?
a. Yes, the survey results can be interpreted as though they came from a controlled experiment about the
effects of exercise.
b. No, because of omitted variables (other factors such as age may be influencing both amount of exercise and
health).
c. No, there might be reverse causality (being in poor health might limit how often one can exercise).
d. No, both (b) and (c) might be contributing to the association between exercise and health.
a. Yes, the survey results can be interpreted as though they came from a controlled experiment about the
effects of exercise.
b. No, because of omitted variables (other factors such as age may be influencing both amount of exercise and
health).
c. No, there might be reverse causality (being in poor health might limit how often one can exercise).
d. No, both (b) and (c) might be contributing to the association between exercise and health.
answer
D
question
Suppose a Chinese company buys some cotton from India for $2 that it uses to make a shirt, which it sells to Target, a US company, for $10. Target sells the shirt in the US for $20. What is the total effect of this activity on US GDP?
answer
US GDP increases by $10
question
In the simple circular flow model discussed in class:
a. GDP could be measured by adding up the incomes of all households.
b. GDP could be measured by adding up the revenues of all firms.
c. The equation Y = C + I + G + NX could be simplified to Y = C.
d. All of the above are true
a. GDP could be measured by adding up the incomes of all households.
b. GDP could be measured by adding up the revenues of all firms.
c. The equation Y = C + I + G + NX could be simplified to Y = C.
d. All of the above are true
answer
D
question
Suppose that the market for potato chips is in equilibrium. Then there is a decrease in the price of potatoes used in making chips. In the new equilibrium after this change:
answer
the price of chips will have fallen and the quantity will have risen
question
Noah is considering going skiing with some friends. The entrance fee is $30 and renting equipment would cost $20. If he doesn't go skiing he would work a part-time job and earn $40. Noah's opportunity cost of going skiing is
answer
$90
question
Joe and Fred are economists. Joe thinks that it is fair to tax the wealthiest 10% of the US population at a rate higher than the rest of society because they can better afford it. Fred thinks that it is fairest to tax everyone at the same rate and that the wealthy should not be penalized for their success. In this example, Joe and Fred
answer
Are showing that they have different normative views about tax policy
question
If the inflation rate is 5 percent and a $3000 deposit increases in value in one year to $3210, what is the real interest rate on that deposit?
answer
2%
question
Which of the following is correct?
a. The labor force includes all adults who are able to work.
b. Unpaid homemakers are counted as "employed" by the Bureau of Labor Statistics.
c. People working part time are counted as "employed" by the Bureau of Labor Statistics.
d. The Bureau of Labor Statistics uses the Current Population Survey to estimate the number of jobs
added each month.
a. The labor force includes all adults who are able to work.
b. Unpaid homemakers are counted as "employed" by the Bureau of Labor Statistics.
c. People working part time are counted as "employed" by the Bureau of Labor Statistics.
d. The Bureau of Labor Statistics uses the Current Population Survey to estimate the number of jobs
added each month.
answer
C
question
If prisoners use cigs to buy and sell things from each other, cigs
answer
are an example of commodity money
question
According to the usual economic analysis, a minimum wage can lead to unemployment by creating a
answer
surplus of labor, unemployment of this type is called structural
question
Because different countries use different currencies, comparisons of real GDP across countries usually use the concept of "purchasing power parity." This means
answer
pricing the same market basket in different countries to convert other currencies to dollars
question
Most economists think that the Consumer Price Index somewhat overstates true increases in the price level. All of the following are reasons, except
a. By keeping the market basket fixed the CPI does not account for substitution away from those products
experiencing the fastest price increases.
b. Producers sometimes reduce the size or quality of a product, and the CPI ignores that.
c. All of the above are reasons that the CPI overstates increases in the price level.
d. The CPI is slow to capture new products that consumers may prefer to old ones in the market basket.
a. By keeping the market basket fixed the CPI does not account for substitution away from those products
experiencing the fastest price increases.
b. Producers sometimes reduce the size or quality of a product, and the CPI ignores that.
c. All of the above are reasons that the CPI overstates increases in the price level.
d. The CPI is slow to capture new products that consumers may prefer to old ones in the market basket.
answer
B
question
In a closed economy, GDP = $11,000, net taxes = $2,500, consumption = $7,000 and government purchases = $3,000. What are private saving and public saving?
answer
$1,500;- $500
question
Michael is hiring some additional workers for his roofing company. Some of his competitors are finding they can get workers for $12 per hour. Efficiency wage theory suggests that it is reasonable for Michael to offer
answer
more than 12 per hour, so that employees will value the job more and therefore work harder
question
Suppose that a firm has an opportunity to borrow $1000 now to finance an investment project. In two years, this project would increase the firm's revenue by $1100, at which point it would pay back the loan. Assume there is no inflation. This project is profitable
answer
if the annual interest rate on the loan is 4% but not if it is 6%
question
Suppose the working-age population of a fictional economy falls into the following categories: 80 are retired or homemakers; 70 have full-time employment; 20 have part-time employment; 20 are not working but are actively looking for employment; and 10 would like employment but are not working and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal
answer
(20/110) x 100
question
Mary got a job in the year 2000 with a salary of $25,000. Two years later she received a $2,000 salary increase. Suppose the value of the CPI was 100 in 2000 and 104 in 2002. To the nearest $100 and nearest 1 percent, what was her 2002 salary in year 2000 dollars and by what percent had her salary increased in real terms?
answer
26,000, 4%
question
A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is ______. From what we have learned about money creation by banks, this loan ________.
answer
an asset for the bank and a liability for Greg's ice cream; increases the money supply
question
Which of the following is true about economic growth? Economic theory predicts that
a. poor countries can grow faster than rich countries, and this is what we observe consistently over the last several decades.
b. all countries should grow at the same rate on a per capita basis, so poor countries will never catch up to rich countries in per capita GDP.
c. poor countries can grow faster than rich countries, and South Korea and China are examples, but for many poor countries it has not been true.
d. poor countries can grow faster than rich countries, but there are no real world examples where this has happened for more than a few years.
a. poor countries can grow faster than rich countries, and this is what we observe consistently over the last several decades.
b. all countries should grow at the same rate on a per capita basis, so poor countries will never catch up to rich countries in per capita GDP.
c. poor countries can grow faster than rich countries, and South Korea and China are examples, but for many poor countries it has not been true.
d. poor countries can grow faster than rich countries, but there are no real world examples where this has happened for more than a few years.
answer
C
question
Suppose the labor force currently includes 200 people. 20 of them are looking for work but have not yet been successful. If 10 of those 20 stop looking, then after a month the unemployment rate ____, and the labor force participation rate ______.
answer
falls, falls
question
Donna deposits $100 of currency into her checking account. If the bank keeps the entire $100 as reserves, M1______, but if the bank lends out some of the $100, M1_______
answer
in unchanged; increases
question
The Fed purchases $200 worth of government bonds from the public. The required reserve ratio is 10 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually
answer
increased by $2000
question
The demand curve for loanable funds
answer
slopes down because borrowers will borrow more at lower interest rates
question
Workers and management agreed on a contract that gives a 5% wage increase for each of the next three years. Everyone expected 3% inflation per year but inflation turned out to be 1% per year. Then at the end of three years
answer
real wages were higher than expected
question
The market basket includes equal amounts of three goods (100 units each). In the base year each good has a price of $1. In the current year good A costs $2, good B costs $3 and good C costs $4. By what percentage did the CPI increase between the base year and the current year?
answer
200
question
You invest $1 with Itzaskam Wealth Management and at the end of 14 years, your account balance is $4.Approximately what was the annual rate of return, assuming it was constant throughout this time?
answer
10%
question
Consider the figure above, for the prime age (25-54) population (units on the y-axis are percent). The upper curve is ____ and the lower curve is _____.
answer
the labor force participation rate; the employment-population ratio
question
most clothing purchased in the US is imported from other countries. It follows from this that increases in the price of clothing
answer
have more effect on the CPI than on the GDP deflator
question
Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If there are diminishing returns and capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase?
answer
by less than $500
question
the period of time that a new college graduate takes to find her first job would be an exampe of
answer
frictional unemployment
question
Suppose that real interest rates in the US fall relative to real interest rates in other countries. This decline would make foreigners
answer
less willing to purchase US assets, so US net capital outflow would rise
question
Which of the following is an example of a capital outflow from the US?
A. a Chinese company buys a shopping mall in Boston
B. A US bank buys British government bonds
C. General Motors (US company) buys auto parts from Canadian firm
D. A sports arena in Chicago is sold to Japanese buyers
A. a Chinese company buys a shopping mall in Boston
B. A US bank buys British government bonds
C. General Motors (US company) buys auto parts from Canadian firm
D. A sports arena in Chicago is sold to Japanese buyers
answer
B. A US Bank buys British government bonds
question
If purchasing-power parity holds between two countries, then the value of the
answer
real exchange rate is equal to one
question
If a country were to reduce its national saving, but its domestic investment remained the same, then which of the following would rise?
answer
neither net exports not net capital outflow would rise
question
The real interest rate (before-tax) is 3%, the inflation rate is 2% and the tax rate on interest is 20%. Given US tax laws, what is after-tax interest rate?
answer
.5 x (1- .2) - .02
question
Which statement is false?
a. Fed policy toward the federal funds rate brought it very close to the zero in 2009 and it did not change until December 2015.
b. The zero lower bound applies more to nominal interest rates than it does to real interest rates, assuming there is some inflation.
c. The amount of excess reserves held by the U.S. banking system increased after 2008 but recently has been declining rapidly.
d. Some central banks are paying negative nominal interest rates on reserves, but the Fed has not adopted this policy
a. Fed policy toward the federal funds rate brought it very close to the zero in 2009 and it did not change until December 2015.
b. The zero lower bound applies more to nominal interest rates than it does to real interest rates, assuming there is some inflation.
c. The amount of excess reserves held by the U.S. banking system increased after 2008 but recently has been declining rapidly.
d. Some central banks are paying negative nominal interest rates on reserves, but the Fed has not adopted this policy
answer
C. the amount of excess reserves held by the US banking system increased after 2008 but recently has been declining rapidly
question
Suppose the nominal interest rate is 6% and inflation is 1%. According to the Fisher effect and assuming the real interest rate is unchanged, what will happen to the nominal interest rate if inflation increases to 4%?
answer
it will increase to 9%
question
Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then the AD-AS model would predict that in the short-run
answer
The price level will rise, and real GDP might rise, fall, or stay the same
question
In 1975 tuition at Wattsomata University was $3,000 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?
answer
Nominal tuition was higher in 2011, real tuition was the same in both years
question
Suppose that nominal GDP is $1,000 real GDP is $500 and the money supply is $200. Then according to the quantity equation the price level is ____ and velocity is ____
answer
2,5
question
Suppose that US mutual funds decide to increase their financial investments in Chinese companies. This action
answer
increases the supply of dollars in the market to exchange for yuan
question
The math equation: quantity of output supplied = natural rate of output + a x (actual price level - expected price level)
answer
expresses how output deviates int he short run from its long run natural rate
question
Suppose the wholesale price of rice is $300 per ton or 30,000 yen per ton, and the nominal exchange rate is 110 yes per dollar. then
answer
you could make a profit by buying rice in Japan and selling it in the US
question
Which statement about the graph above is false?
a. The shift from MD2 to MD1 could have come from an increase in the price level.
b. The shift from MD2 to MD1 shows the result of the Fed selling bonds.
c. The shift from MD2 to MD1 would be expected to decrease investment through the interest rate effect.
d. The shift from MD2 to MD1 could have come from an increase in real GDP.
a. The shift from MD2 to MD1 could have come from an increase in the price level.
b. The shift from MD2 to MD1 shows the result of the Fed selling bonds.
c. The shift from MD2 to MD1 would be expected to decrease investment through the interest rate effect.
d. The shift from MD2 to MD1 could have come from an increase in real GDP.
answer
B
question
According to the usual analysis of monetary policy, if the Fed sells bonds
answer
Aggregate demand shifts to the left
question
Suppose that improvements in technology make it possible to produce more output with the same inputs. What happens to aggregate supply?
answer
Both LRAS and SRAS shift to the right
question
If purchasing power parity holds, what will happen if the US experiences inflation but Canada does not?
answer
The nominal exchange rate (Canadian dollars per US dollar) will depreciate
question
According to the "sticky wage" theory
answer
if there is an unexpected fall in the price level, firms will tend to reduce output because wages do not quickly adjust downward
question
Which statement about inflation and its costs is false?
a. The "shoeleather" costs of inflation increase as the inflation rate gets higher, whether it is anticipated or not.
b. The "inflation tax" is in effect a tax on all assets that are not increasing in value at least as fast as the price level is increasing.
c. If inflation turns out to be higher than expected, it redistributes wealth from borrowers to lenders.
d. Anticipated inflation is not necessarily bad for lenders, because it gets built into the nominal rates they charge
a. The "shoeleather" costs of inflation increase as the inflation rate gets higher, whether it is anticipated or not.
b. The "inflation tax" is in effect a tax on all assets that are not increasing in value at least as fast as the price level is increasing.
c. If inflation turns out to be higher than expected, it redistributes wealth from borrowers to lenders.
d. Anticipated inflation is not necessarily bad for lenders, because it gets built into the nominal rates they charge
answer
C
question
Suppose that the government of an open economy finds that it has a budget surplus, and decides to increase spending to bring the budget into balance (reducing public saving). We would predict that the interest rate will ____, leading to a ____ net capital outflow, and the real exchange rate will ____
answer
rise, smaller, appreciate
question
Suppose MPC= 3/4 and every $1 increase in government spending crowds out 50 cents of private investment. If government spending is increased by $60 billion, what is the impact on aggregate demand?
answer
$120 billion
question
If a market basket that costs $1000 in the US costs 600 pounds in the UK, then the real exchange rate of British goods for US goods is
answer
10/6 times the nominal exchange rate of pounds per dollar
question
Other things the same, if US interest rates falls relative to foreign interest rates, then
answer
US residents want to buy more foreign bonds. The real exchange rate falls
question
Which statement is false?
a. Fed policy toward the federal funds rate came very close to the zero lower bound in 2009 and has remained there since.
b. The zero lower bound applies more to nominal interest rates than it does to real interest rates, assuming there is some inflation.
c. The U.S, federal funds rate is slightly negative (about -0.1%) at present.
d. German government bond rates show that it is possible for some nominal interest rates to be negative.
a. Fed policy toward the federal funds rate came very close to the zero lower bound in 2009 and has remained there since.
b. The zero lower bound applies more to nominal interest rates than it does to real interest rates, assuming there is some inflation.
c. The U.S, federal funds rate is slightly negative (about -0.1%) at present.
d. German government bond rates show that it is possible for some nominal interest rates to be negative.
answer
C
question
As we have modeled the loanable funds market in an open economy, the source for the demand for loanable funds is
answer
investment + net capital outflow
question
Which of the following statements is correct for an open economy with a trade surplus?
a. The trade surplus cannot last for very many years.
b. The trade surplus implies that the country's national saving is greater than domestic investment.
c. The trade surplus must be offset by negative net capital outflow.
d. None of the above is correct
a. The trade surplus cannot last for very many years.
b. The trade surplus implies that the country's national saving is greater than domestic investment.
c. The trade surplus must be offset by negative net capital outflow.
d. None of the above is correct
answer
B. the trade surplus implies that the country's national saving is greater than domestic investment
question
Regarding the connection between the liquidity model and aggregate demand, when the price level falls
answer
investment spending rises
question
According to the wealth effect, if the price level falls, the real value of money holdings
answer
rises, so people will want to consume more. This response helps explain the slope of the aggregate demand curve
question
Which statement is the most accurate about Ben Bernanke's and Janet Yellen's current ideas about monetary policy and the federal funds rate?
a. Bernanke thinks that the rate should be raised now, but Yellen disagrees.
b. Both believe that the Fed is powerless to raise the rate, even if it wanted to.
c. Both believe it is too soon to raise the rate, because a contractionary policy is not appropriate at this time.
d. Both believe that the rate should be kept low in order to minimize the cost of government borrowing.
a. Bernanke thinks that the rate should be raised now, but Yellen disagrees.
b. Both believe that the Fed is powerless to raise the rate, even if it wanted to.
c. Both believe it is too soon to raise the rate, because a contractionary policy is not appropriate at this time.
d. Both believe that the rate should be kept low in order to minimize the cost of government borrowing.
answer
C. Both believe it is too soon to raise the rate, because a contractionary policy is not appropriate at this time
question
In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on real output. Which of the following would make the effect of an increase in government expenditures on real output larger?
answer
The MPC is large and short run aggregate supply is very flat
question
Which statement about inflation and its costs is false?
a. The "inflation tax" is equivalent to a tax on all wealth, with the tax rate equal to the rate of inflation.
b. Anticipated inflation is not necessarily bad for lenders, because it gets built into the nominal rates they charge.
c. If inflation turns out to be lower than expected, it redistributes wealth from borrowers to lenders.
d. The "shoeleather" costs of inflation increase as the inflation rate gets higher, whether it is anticipated or not.
a. The "inflation tax" is equivalent to a tax on all wealth, with the tax rate equal to the rate of inflation.
b. Anticipated inflation is not necessarily bad for lenders, because it gets built into the nominal rates they charge.
c. If inflation turns out to be lower than expected, it redistributes wealth from borrowers to lenders.
d. The "shoeleather" costs of inflation increase as the inflation rate gets higher, whether it is anticipated or not.
answer
A. The "inflation tax" is equivalent to a tax on all wealth, with the tax rate equal to the rate on inflation
question
The mathematical equation: quantity of output supplied = natural rate of output + a (actual price level - expected price level)
answer
Expresses how output deviates in the short run from its long run natural rate
question
Suppose MPC= 2/3 and every $1 increase in government spending crowds out 50 cents of private investment. If government spending is increased by $60 billion, what is the impact on aggregate demand?
answer
$90 billion
question
The fisher effect
answer
is consistent with money neutrality in the long run
implies that, if inflation is constant, anything that increases the real interest rate will increase the nominal rate by the same amount
implies that, if inflation is constant, anything that increases the real interest rate will increase the nominal rate by the same amount
question
Tara deposits money into an account with a nominal interest rate of 6%. She expects inflation to be 2%. Her tax rate is 20%. Tara's after-tax real rate of interest
answer
will be 2.8% if inflation turns out to be 2%; it will be lower if inflation turns out to be higher than 2%
question
If wages are sticky and the price level turns out to be higher than expected
answer
businesses have an incentive to expand production, so the aggregate quantity of goods and services rises
question
Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?
answer
Y falls or V rises
question
According to the usual analysis of monetary policy, if the Fed buys bonds
answer
Aggregate demand shifts to the right
question
Suppose the wholesale price of rice is $300 per ton or 32,000 yen per ton, and the nominal exchange rate is 110 yen per dollar. then
answer
you could make a profit by buying rice in Japan and selling it in the US
question
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
answer
nominal GDP
nominal wages
the price level
nominal wages
the price level
question
If domestic residents of other countries purchase $600 billion of US assets and US residents purchase 500 billion of foreign assets, then US net capital outflow is
answer
-100 billion and the US has a trade deficit
question
Which of the following is not an example of an automatic stabilizer?
a. Unemployment compensation paid automatically to workers who lose their jobs.
b. A rule that automatically cuts government spending on road maintenance when revenues fall.
c. A decline in revenue from taxes on corporate profits when profits fall.
d. All of the above are automatic stabilizers
a. Unemployment compensation paid automatically to workers who lose their jobs.
b. A rule that automatically cuts government spending on road maintenance when revenues fall.
c. A decline in revenue from taxes on corporate profits when profits fall.
d. All of the above are automatic stabilizers
answer
B. a rule that automatically cuts government spending on road maintenance when revenues fall
question
What would shift both the short-run and long-run aggregate supply left?
answer
a natural disaster that destroys a significant part of the capital stock
question
Ben Bernanke says "Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth - not by the fed" Which of the following would he disagree with?
a. Money is neutral in the long run
b. government borrowing only crowds out investment in the short run
c. the classical dichotomy holds in the long rin
d. the statement implies that he would agree with all of the above
a. Money is neutral in the long run
b. government borrowing only crowds out investment in the short run
c. the classical dichotomy holds in the long rin
d. the statement implies that he would agree with all of the above
answer
B.
question
When the price level falls, the number of dollars needed to buy a representative basket of goods
answer
decreases, so the value of money rises
question
If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in
answer
both the price level and nominal output
question
Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?
answer
inflation is acting like a tax on everyone who holds money
question
If a country has a trade deficit of 10 billion and then its exports rose by 20 billion and its imports rise by 10 billion, its net exports would now be
answer
$0
question
Suppose that real interest rates in the US rise relative to real interest rates in other countries. This increase would make foreigners
answer
more willing to purchase US assets, so US net capital outflow would fall
question
Goods that cost one dollar in the US cost one euro in France, the real exchange rate would be computed as how many French goods per US goods?
answer
the price of the US goods
question
The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given US tax laws, how it after-tax real return computed?
answer
.04(1-.2) - .01
question
Suppose the wholesale price of rice is $300 per ton or 32,000 yen per ton, and the nominal exchange rate is 110 yen per dollar. Then
answer
you could make a profit by buying rice in Japan and selling it in the US
question
If purchasing-power parity holds, then the value of the
answer
real exchange rate is equal to one
question
Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of
answer
Three percent and prices fell one percent
question
An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year
answer
his real salary has fallen and his nominal salary has risen
question
According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also
answer
either a rise in output or a fall in velocity
question
If a country's public saving falls, then its exchange rate
answer
rises, so its imports rise
question
You can reduce the effect of the inflation tax on yourself by
answer
reducing the amount of your wealth held as money
question
after taxes were cut in the US in the early 1980s,
answer
national saving fell below investment and net capital outflow was a large negative number
question
If a country were to save more, but its domestic investment remained the same, then what would rise?
answer
both net capital outflow and net exports
question
If velocity= 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is
answer
32,000
question
If US citizens decide that they want to buy more foreign assets
answer
the supply of dollars in the market for dollars to exchange for foreign currency shifts right
question
Which of the following is correct?
a. When studying long-run changes in the economy, the neutrality of money offers a good description of how the
world works.
b. The classical dichotomy separates real and nominal variables.
c. Monetary neutrality is the proposition that changes in the money supply do not change real variables.
d. All of the above are correct
a. When studying long-run changes in the economy, the neutrality of money offers a good description of how the
world works.
b. The classical dichotomy separates real and nominal variables.
c. Monetary neutrality is the proposition that changes in the money supply do not change real variables.
d. All of the above are correct
answer
D
question
If the nominal interest rate is 5% and there is a deflation rate of 3%, what is the real interest rate?
answer
8%
question
If the nominal exchange rate it .7 euro per dollar, the price of an MP3 players in Paris is 150 euros and the price of an MP3 player in the US is $150, then what is the real exchange rate?
answer
.70 French MP3 per US MP3 player
question
Paul, a US citizen, builds a telescope factory in Israel. His expenditures
answer
increase US net capital outflow, but decrease Israeli net capital outflow
question
The Fisher effect says that
answer
the nominal interest rate adjusts one for one with the inflation rate
question
If the price level increased from 120 to 130, then what was the inflation rate?
answer
8.3%
question
wealth is redistributed from lenders to borrowers when inflation is
answer
unexpectedly high
question
A US citizen buys bonds issued b an automobile manufacturer in Japan. Her expenditures are US
answer
foreign portfolio investment that increases US net capital outflow
question
In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. What is correct?
answer
Nominal and real tuition were both higher in 2011
question
Under the assumption of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
answer
the nominal interest rate rises, but the real interest rate does not
question
Assuming GDP is unchanged, if a government started with a budget deficit and moved to a surplus, domestic investment
answer
would rise and the real exchange rate would fall
question
other things the same, if the US real exchange rate appreciates, US net exports
answer
and US net capital outflow both decrease
question
what is the equation for an open economy?
answer
S= I + NCO
question
You put money into an account and earn a real interest rate of 5%. Inflation is 2%, and your marginal tax rate is 35%. What is your after-tax real rate of interest?
answer
2.55%
question
Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?
answer
$20 billion for country A and -20 billion for country B
question
If velocity an output were nearly constant, then
answer
the inflation rate would be about the same as the money supply growth rate
question
According to the classical dichotomy, when the money supply doubles, what also doubles?
answer
a price level
nominal wages
nominal GDP
nominal wages
nominal GDP
question
Suppose that M is fixed. According to the quantity equation, what would make the price level higher?
answer
Y falls and V rises
question
An MP3 player in singapore costs 200 Singaporean dollars. In the US it costs 100 US dollars. What is the nominal exchange rate is purchasing-power parity holds?
answer
2.0
question
Which statement generates the greatest among of disagreement among economists?
answer
Government should use fiscal policy to try to stabilize the economy
question
If the MPC= 4/5, then the government purchases multiplier (assuming no crowding-out) is
answer
5
question
What shifts short-tun aggregate supply left?
answer
an increase in the expected price level
question
From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted
answer
aggregate demand right
question
Since the end of WWII, the US has almost always had rising prices and an upward trend in real GDP. To explain this
answer
both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting faster
question
The lag problem associated with fiscal policy is due mostly to
answer
the political system of check and balances that slows down the process of implementing fiscal policy
question
The price of imported oil rises. If the government wanted to keep output the same as before the price increase, what could do it?
answer
increase government expenditures or increase the money supply
question
real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
answer
the short run, but not the long run
question
Which of the following statements concerning the aggregate demand and aggregate supply model is correct?
a. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
b. The price level and quantity of output adjust to bring aggregate demand and supply into balance.
c. The aggregate demand slopes down for the same reasons that the demand curve slopes down in an individual
market.
d. All of the above are correct.
a. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
b. The price level and quantity of output adjust to bring aggregate demand and supply into balance.
c. The aggregate demand slopes down for the same reasons that the demand curve slopes down in an individual
market.
d. All of the above are correct.
answer
B
question
The idea of the zero lower bound
answer
is not strictly correct for the bank of Japan today
does not apply to real interest rates during periods of inflation
is that nominal interest rates should not go below zero because one can simply hold into currency and earn a zero return
does not apply to real interest rates during periods of inflation
is that nominal interest rates should not go below zero because one can simply hold into currency and earn a zero return
question
If the fed conducts open-market sales, the money supply
answer
decreases and aggregate demand shifts left
question
A situation in which Fed's target interest rate has fallen as far as it can fall is sometimes describes as a
answer
zero lower bound
question
The multiplier effect
answer
amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects
question
The simple multiplier for changes in government spending is calculated as
answer
1/(1+MPC)
question
Automatic stabilizers
answer
are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession
question
Which of the following correctly describes actions of the U.S. government during the recession of 2008-2009?
a. It refused to provide banks funding but made a large increase in government spending.
b. It became part owner of some banks but made no significant change in government spending
c. It refused to provide banks funding and made no significant changes in government spending.
d. It became part owner of some banks and made a large increase in government spending
a. It refused to provide banks funding but made a large increase in government spending.
b. It became part owner of some banks but made no significant change in government spending
c. It refused to provide banks funding and made no significant changes in government spending.
d. It became part owner of some banks and made a large increase in government spending
answer
D
question
Other things the same, which of the following responses would we expect to result from an increase in US interest rates?
answer
Your aunt moves money from her checking to a less liquid savings account
question
If the dollar appreciates, then US net exports
answer
decrease, which by itself shifts aggregate demand left
question
According to the liquidity preference theory, an increase in the price level by 10%
answer
increases equilibrium interest rate,
decreases the quantity of goods and services demanded
decreases the quantity of goods and services demanded
question
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected
answer
production is more profitable and employment rises
question
When the fed buys government bonds, the reserves of the banking system
answer
increase, allowing the money supply to increase
question
Fiscal policy refers to the idea that aggregate demand is affected by changes in
answer
government spending and taxes
question
liquidity preference theory is most relevant to the
answer
short run and supposes that the interest rate adjusts to bring money supply and money demand into balance
question
according to the theory of liquidity preference,
answer
the demand for money is represented by a downward-sloping line on a supply-and-demand graph
question
Assuming that a is positive, the short-run aggregate supply curve can be expressed mathematically as
answer
quantity of output supplied = natural rate of output + a x (actual price level- expected price level)
question
According to the theory of liquidity preference, money demanded
answer
is negatively related to the interest rate, while the money supply is independent of the interest rate
question
The logic of the multiplier effects applies
answer
to any change in spending on any component of GDP
question
what explains why production rises in most years?
answer
increases in the capital stock
advances in technological knowledge
increases in the labor force
advances in technological knowledge
increases in the labor force
question
the short run aggregate supply curve
answer
slopes up but is probably flatter when the economy is in a deep recession than when the economy is near full employment
question
Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000
billion while economy B has had a money supply of $500 billion. It follows that
billion while economy B has had a money supply of $500 billion. It follows that
answer
the price level, but not real GDP is lower in country B
question
The quantity of money has no real impact on things people really care about like whether or not they have a job. Most
economists would agree that this statement is appropriate concerning
economists would agree that this statement is appropriate concerning
answer
the long run, but not the short run
question
as the price level falls
answer
people want to hold less money, so interest rates fall
question
what causes stagflation?
answer
aggregate supply shifts left
question
Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?
answer
aggregate demand shifted left
question
If the long-run aggregate supply curve does not shift, a permanent change in aggregate demand would lead to a longrun change
answer
in the price level, but not output
question
Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then
answer
employment and production rise
question
what shifts aggregate demand to the left?
answer
households decide to save a larger fraction of their income
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
