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- 1. Multiple ChoiceWhich of the following is always true of an
economy operating on its production possibilities
frontier?Its resources are fully employed.It is allocatively efficient.It cannot trade with other nations because it
is the most efficient producer of tradeable
goods.It will necessarily operate on the same frontier the following year. - 2. Multiple ChoiceOpen market operations take place when thecentral bank buys or sells stockscentral bank buys or sells government bondscentral bank increases or decreases the
discount rate to monitor the money supplycentral bank increases or decreases reserve
requirements for depository institutions - 3. Multiple ChoiceA rightward shift in the short-run aggregate
supply curve will occur whenexports exceed importsthe money supply increasesthe prices of imported raw materials increasethe stock of physical capital increases - 4. Multiple ChoiceAn increase in which of the following is most likely to increase long-run economic growth?Interest rateIncome tax rateMarginal propensity to consumeInvestment in human capital
- 5. Multiple ChoiceSuppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to
which of the following?$1,500 billion$2,000 billion$2,500 billion$3,000 billion - 6. Multiple ChoiceThe money demand curve is downward sloping becausethe transaction demand for money decreases
as interest rates fallpeople hold less money as the opportunity
cost of holding money risesmoney is less liquid as interest rates rise, so
people are able to hold less of itbanks are more willing to create money when
interest rates fall - 7. Multiple ChoiceAccording to the quantity theory of money,
the quantity of money is relatednegatively to the nominal interest ratenegatively to the price levelpositively to the unemployment ratepositively to the nominal gross domestic
product - 8. Multiple ChoiceWhich of the following would generate cost-push inflation?An increase in the price of laborA decrease in the price of energyAn increase in household consumptionA decrease in government spending
- 9. Multiple ChoiceAssuming no change in the nominal wage and a significant increase in human capital, the output per worker willincrease and the real wage will decreaseincrease and the real wage will increasedecrease and the real wage will decreasedecrease and the real wage will increase
- 10. Multiple ChoiceScarcity exists becausehuman wants exceed the productive capacity
of the economysupplies of land and other natural resources
are unlimitedphysical capital does not depreciatepopulation and labor force growth are
slowing - 11. Multiple ChoiceTo counter a recession, the central bank might pursue which of the following actions?Increasing reserve requirements and selling
securities on the open marketIncreasing capital gains tax and selling
securities on the open marketDecreasing reserve requirements and
increasing the discount rateDecreasing the discount rate and buying
securities on the open market - 12. Multiple ChoiceAn increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?AD shift to the right, SRAS shift to the rightAD shift to the left, SRAS shift to the leftAD shift to the left, SRAS no changeAD no change, SRAS shift to the left
- 13. Multiple ChoiceSuppose that the central bank buys $100 worth of bonds on the open market. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and there are no cash leakages. After banks have made all adjustments, reserves, demand deposits, and loans will increase by which of the following?Reserves: $1,000
Demand Deposits: $1,000
Loans: $1,000Reserves: $1,000
Demand Deposits: $900
Loans: $1,000Reserves: $900
Demand Deposits: $1,000
Loans: $900Reserves: $100
Demand Deposits: $1,000
Loans: $900 - 14. Multiple ChoiceA simultaneous increase in both the demand for and the supply of a good in a market will lead to which of the following changes price and quantity of the good?Price increase, Quantity increasePrice indeterminate, Quantity decreasePrice indeterminate, Quantity increasePrice increase, Quantity Indeterminate
- 15. Multiple ChoiceCountry A both imports and produces tea. If Country A imposes a tariff on imported tea, which of the following will occur?Tea consumption will increase.Domestic tea production will decrease.Employment in the domestic tea industry will
increase.The domestic price of tea will decrease. - 16. Multiple Choice
In the United States, which event would have caused the shift of the money supply curve from S1 to S2 in the money market shown above?The purchase of government bonds on the
open market by the Federal ReserveAn increase in the required reserve ratioA short-run increase in output, employment,
and incomeAn increase in general price level in the
United States - 17. Multiple ChoiceThe short-run Phillips curve shows thatthere is a trade-off between inflation and
unemploymenthigh rates of unemployment are linked to
high rates of interesthigh rates of inflation are linked to high
rates of interesthigh rates of interest are consistent with
increases in the money supply - 18. Multiple ChoiceAccording to the income and consumption schedules shown above, the marginal propensity to consume is1.330.900.800.75
- 19. Multiple ChoiceWhich of the following is an example of frictional unemployment?A person quits a job to search for another job.A person lacks the skills to fill any of the
available jobs.A person loses a job because of a recession.A person retires from the workforce. - 20. Multiple ChoiceIn the long run, a decrease in the money supply will affect the price level and the level of output in which of the following ways?Price level increase
Output increasePrice level increase
Output no changePrice level decrease
Output increasePrice level decrease
Output no change - 21. Multiple ChoiceIf fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?Real output: Increase
Unemployment: DecreaseReal Output: Increase
Unemployment: IncreaseReal Output: Decrease
Unemployment: DecreaseReal Output: Decrease
Unemployment: Increase - 22. Multiple ChoiceGiven the aggregate demand and aggregate supply curves shown above, if policy makers want to increase real output without causing inflation, they can pursue a policy that willincrease aggregate demand and decrease
aggregate supply by equal amountsdecrease aggregate demand onlyincrease aggregate demand onlyincrease aggregate supply only - 23. Multiple ChoiceWhich of the following is most likely to increase the real interest rate in Country Z ?Country Z’s central bank purchases government securities from banks and citizens.Country Z reduces government expenditures.Country Z is viewed as having increased
political and economic risk.Country Z’s citizens increase their savings in
anticipation of needed retirement income.
(E) Country Z introduces a tax on consumption - 24. Multiple ChoiceAssume that Canada imports more goods and services than it exports. Which of the following is true of the Canadian balance of payments accounts?The current account balance must be
negative.The current account balance must be positive.The trade balance must be negative.The financial account (formerly called capital
account) balance must be negative. - 25. Multiple ChoiceAn economy’s full-employment real output will decrease whenprice level increasesprice level decreasestechnological change increases labor
productivityworkers choose shorter weeks to enjoy
more leisure time - 26. Multiple ChoiceWhich of the following is true if exchange rates are freely floating?The free market forces of demand and supply
determine the equilibrium exchange rates.The demand curve for the currency is upward
sloping.Only nominal values of currency can be
determined.The market determines the equilibrium value
of the currency, but governments buy and
sell currency at a fixed rate. - 27. Multiple ChoiceWhich of the following combinations of policies is designed to decrease inflation?An increase in taxes and a decrease in the
reserve requirementAn increase in taxes and an open-market
purchase of government securitiesA decrease in taxes and an open-market
purchase of government securitiesA decrease in government spending and an
open-market sale of government securities - 28. Multiple ChoiceWhen Country X’s central bank engages in monetary policy actions that lead to a decrease in interest rates, the international value of Country X’s currency and Country X’s exports and imports will most likely change in which of the following ways?Value of Currency: Increase
Exports: Increase
Imports: IncreaseValue of Currency: Increase
Exports: Increase
Imports: DecreaseValue of Currency: Increase
Exports: Decrease
Imports: DecreaseValue of Currency: Decrease
Exports: Increase
Imports: Decrease - 29. Multiple ChoiceA country’s real gross domestic product is the annual value of all final goods and services that arepurchased in that country, adjusted for
changes in the price levelproduced in that country, expressed
in current pricesproduced in that country, less exportsproduced in that country, adjusted for
changes in the price level - 30. Multiple ChoiceIf a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run?Price Level: No change
Real Output: IncreasePrice Level: Increase
Real Output: No changePrice Level: Decrease
Real Output: No changePrice Level: Decrease
Real Output: Decrease - 31. Multiple ChoiceIn the aggregate demand-aggregate supply model, economic growth can best be represented by aleftward shift of the long-run aggregate
supply curverightward shift of the long-run aggregate
supply curverightward shift of the short-run aggregate
supply curverightward shift of the aggregate demand
curve - 32. Multiple ChoiceAn increase in which of the following leads to an increase in output per worker?Income tax ratesReal interest rateThe labor-force participation rateThe stock of physical capital per worker
- 33. Multiple ChoiceThe United States national debt isthe amount of money owed by the federal
government to United States citizensthe amount of money owed by the federal
government to other United States
government agenciesthe amount of currency in the hands of
foreignersthe amount of money owed to holders of
United States government securities - 34. Multiple ChoiceClassical economists believe that the economy moves toward full employment becausegovernment spending supplements private investment to keep aggregate demand in balance with aggregate supplyhouseholds spend all of their disposable income to purchase the full-employment outputwages and prices are flexibleprivate investment is constant and
independent of national income - 35. Multiple ChoiceWhich of the following would shift a country’s production possibilities curve inward?A reduction in the country’s inflation rateA reduction in the country’s real interest rateA reduction in the size of the country’s labor
forceAn increase in the typical retirement age in
the country - 36. Multiple ChoiceIf the central bank conducts an open-market purchase of bonds, which of the following will occur?The price of bonds will increase.The money supply will decrease.Total bank reserves will decrease.Consumption will decrease.
- 37. Multiple ChoiceAccording to the short-run Phillips curve, a contractionary fiscal policy will result ina decrease in both unemployment and pricesa decrease in inflation and an increase in unemploymenta decrease in both wage rates and
unemploymentan increase in both wage rates and
unemployment - 38. Multiple ChoiceA short-run increase in national income could be
caused by a decrease in which of the following?ConsumptionInvestmentImportsGovernment spending - 39. Multiple ChoiceThe loanable funds market is best described as bringing togethersavers and borrowersinvestors and borrowersfinancial institutions and investorssavers and lenders
- 40. Multiple ChoiceAn unanticipated decrease in aggregate demand will most likely cause the unemployment rate and the inflation rate to change in which of the following ways?Unemployment Rate: Increase
Inflation Rate: IncreaseUnemployment Rate: Increase
Inflation Rate: DecreaseUnemployment Rate: Increase
Inflation Rate: No changeUnemployment Rate: Decrease
Inflation Rate: Increase - 41. Multiple ChoiceAssume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves, and that the reserve requirement is 10 percent. A customer withdraws $5,000 from the bank. To meet the reserve requirement, the bank must increase its reserves by$500$1,000$2,000$4,500
- 42. Multiple ChoiceSuppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy’s marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following?Increase spending by $2,400 billion.Increase spending by $600 billion.Increase spending by $150 billion.Decrease taxes by $150 billion.
- 43. Multiple ChoiceAssume that Linda deposits in her checking account the $1,000 cash she was keeping at home for an emergency. If the required reserve ratio is 0.20, what is the maximum change in the money supply from her deposit?$1,000$1,250$2,000$4,000
- 44. Multiple ChoiceThe table above shows the quantity demanded and quantity supplied for bushels of wheat at various prices. Which of the following combinations is the equilibrium price and quantity for wheat?Price: $2.00
Quantity: 10,000 Bushels of wheatPrice: $1.75
Quantity: 15,000 Bushels of wheatPrice: $1.50
Quantity: 20,000 Bushels of wheatPrice: $1.75
Quantity: 30,000 Bushels of wheat - 45. Multiple ChoiceThe table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929 ?$25$125$250$300
- 46. Multiple ChoiceThe aggregate demand curve assumes thatas the price of a good or service increases,
nominal wages decreaseas the domestic price level increases,
consumers substitute domestic goods for
foreign goodsall prices and total consumer incomes are
constantchanges in the price level affect real wealth - 47. Multiple ChoiceWhich of the following best describes the present value of one dollar received one year from today?It is worth more than a dollar received today.It is worth less than a dollar received today.It has the same value as a dollar received
today.It decreases as interest rates decrease. - 48. Multiple ChoiceIf an increase in government spending, financed by borrowing, crowded out an equal amount of private spending, which of the following would result?Interest rates would decrease.Aggregate demand would remain
unchanged.The price level would increase.Unemployment would increase. - 49. Multiple ChoiceAn increase in which of the following will cause an increase in the demand for money?The interest rateThe supply of moneyThe price levelThe velocity of money
- 50. Multiple ChoiceSuppose that in a particular country, nominal gross domestic product (GDP) grew by 8 percent, and the GDP deflator increased by 10 percent. The country’s growth rate of real GDP would be approximately equal to-2%-0.8%0.8%2%
- 51. Multiple ChoiceAssume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?GDP will increase by a maximum of
$200 million.GDP will increase by a maximum of
$180 million.GDP will decrease by a maximum of
$200 million.GDP will decrease by a maximum of
$180 million. - 52. Multiple ChoiceWhich of the following best describes an economy at full employment?The rate of unemployment is zero.There is only structural and cyclical
unemployment.There is cyclical, but not structural,
unemployment.There is frictional, but not cyclical,
unemployment. - 53. Multiple ChoiceWally can make 40 units of good X or 30 units of good Y in a day, and Sam can make 20 units of good X or 10 units of good Y in a day. Assuming constant trade-offs between good X and good Y, which of the following is true?Sam has a comparative advantage in making
good X.Sam has a comparative advantage in making
good Y.Wally has a comparative advantage in
making both goods.Sam has an absolute advantage in making
good X. - 54. Multiple ChoiceAutomatic stabilizers can do which of the
following?Offset the destabilizing influence of changes
in tax revenuesAid the economy to move away from the full-employment output levelAllow policymakers to formulate a set of rules
flexible and comprehensive enough to
eliminate discretionary actionsCause tax revenues to decrease when gross
domestic product (GDP) decreases and to
increase when GDP increases - 55. Multiple ChoiceAccording to the graph above, which of the following statements about the economy is true?The economy is in long-run equilibrium.The LRAS curve will automatically shift to
the right, restoring long-run equilibrium.In the short run, if wages are sticky the SRAS
will shift to the right, lowering prices.Wages will eventually decrease, restoring full
employment in the long run. - 56. Multiple ChoiceAn increase in Canada’s real interest rates relative to real interest rates in the rest of the world will
lead to which of the following in Canada?An increase in exports(B) A decrease in importsA reduced government budget deficitFinancial capital inflow - 57. Multiple ChoiceThe real interest rate earned is thesame as the nominal interest rate when
inflation is moderatecost of borrowing in current consumer pricescost of borrowing in current producer pricescost of borrowing adjusted for the rate of
change in the price level - 58. Multiple ChoiceWhen purchasing her house, Ms. Jones took out a 15-year mortgage loan from a local bank at a fixed interest rate of 7 percent. The rate of expected inflation at the time was 3 percent. If the actual rate of inflation was 4.5 percent, which of the following is true?The bank gained because the real rate of
interest increased by 1.5%.The bank gained because the real rate of
interest became 3.5%.The bank lost because the real rate of interest
decreased by 1.5%.Ms. Jones gained because the nominal rate of
interest increased by 1.5%. - Answer choicesTagsAnswer choicesTags