question

Which of the following correctly describes the components of Aggregate Demand?

answer

Consumption Expenditures + Investment Expenditures + Government Expenditures + Exports - Imports

question

Which of the following formulas is correctly stated?

answer

Nominal interest rate = real interest rate + anticipated inflation

question

Which of the following would not affect the size of real GDP?

answer

Consumer purchase of a rare renaissance painting.

question

If an autonomous increase in spending in an economy of 100 leads to an increase in real GDP of 500 then for that ecoonomy the marginal propensity to consume must have been:

answer

4/5

question

If the governmen increased spending by 10 and increased taxes by 10 to pay for the increased spending then which of the following combinations would correctly explain the effect on the budget and GDP?

answer

Budget = Unchanged GDP = Increase

question

If a 100 deposit in a bank leads to a 1000 increase in the money supply, the reserve requirement must have been:

answer

.10%

question

Long run economic growth in a country would have encouraged through which of the following combinations of events?

answer

Investment = High Interest Rates = Low Savings Rate= High

question

Which of the following people would be considered structurally unemployed?

answer

Unemployed auto assemby line factory worker who was replaced with a robot.

question

Which combination of events described below would be the most expansionary for an economy, assuming that they all happened at the same time?

answer

Taxes = Decrease Government Spendng = Increase Net Exports = Increase Reserve Requirement = Decrease

question

If an economy is suffering from inflation, what fiscal policy measure could be taken to help alleviate the problem?

answer

Increase taxes

question

Which of the following would be an appropriate monetary policy measure to combat inflation?

answer

Sell bonds

question

Based on figure 1 a movement from C0 to C2, in both diagrams, would be consistent with which of the following?

answer

Fixed tax cut and cut in tax rate

question

Over the long run, the rate of growth of real wages is approximately equal to the rate of:

answer

growth of labor productivity.

question

Based on Figure 2 the size of the simple multiplier is

answer

four

question

Based on Figure 2 the economy shown is experiencing a/an

answer

Recessionary gap

question

Based on Figure 2 the MPC is:

answer

75%

question

A producion possibility curve is most closely related to which of the following?

answer

Long run aggregate supply curve

question

Which of the following combinations of policy moves would be recommended for an economy experiencing an annual increase in the inflation rate of 6% and an unemployment rate of 5%?

answer

Increase income tax rates and sell bonds

question

The Keynesiann monetary policy transmission mechanism would correctly be described in which of the following?

answer

Money Supply = increase Interest Rate = Decrease Investment = Increase GDP = Increase

question

Crowding out describes a relationship among deficits, interest rates, and private spending. Which of the following describes that relationship?

answer

Deficit = Increase Interest Rate = Increase Private Spending = Decrease

question

Which of the following correctly describe the concept of the multiplier? I. It takes time for the multiplier to work. The impact of an independent change in investment during the first six months will be considerably smaller than the multiplier analysis implies. II. When the marginal propensity to consume is .8, an independent increase in investment of $10 billion will cause the aggregate income of a fully employed economy to rise to $50 billion. III. The multiplier effect may be ever larger over time as its effect is supported by the interest rate and foreign purchases effect.

answer

I is true, II and III are false

question

"In the first half of 1973, prices rose at an annual rate of 8 percent and real output at 4.5 percent, while unemployment fell from 5.0 percent to 4.8 percent. From June 1972 to June 1973, the money supply increased 11 percent, while the U.S. government ran a deficit equal to 2 percent of GDP." since unemployment was already at or near its natural rate during 1972-73,

answer

monetary and fiscal policy of the period added to the inflationary pressure already plaguing the economy.

question

In a typical circular flow model describing the interaction of businesses and households, which of the following is/are true? I. Households buy factors of production and goods II. Firms buy factors of production and goods III. Households buy factors of production IV. Firms buy factors of production V. Firms buy goods VI. Households buy goods

answer

IV and VI only

question

If Americans suddenly decide to hold more cash for carrying on transactions and for precautionary reasons, which of the following is most likely to result?

answer

Increase in interest rates

question

If the federal government and the Federal Reserve both attempt to contract the economy, which of the following sets correctly describes the probable results of these actions? (FP = Fiscal Policy MP = Monetary policy)

answer

Interest Rates: FP = Decrease, MP = Increase Price Level: FP = Decrease, MP = Decrease Output: FP = Decrease, MP = Decrease

question

The Keynesian model would find monetary policy to be less effective if:

answer

Investment demand is inelastic

question

Banks create money when they:

answer

loan excess reserves to the public

question

Which of the following would be hurt the most by unanticipated inflation?

answer

Creditors

question

A graphical representation with unemployment on the horizontal axis and inflation on the vertical axis is known as:

answer

Phillips Curve

question

Stagflation could be caused by which of the following?

answer

Decrease in aggregate supply

question

If interest rates rise, growth will be slowed because;

answer

Firms will invest in fewer projects with future payoffs thus limiting growth.

question

If inflation is 5% and nominal GDP grew by 4% then during the same period real GDP grew by:

answer

-1%

question

Based on Figure 3,, a movement from ____ to ____ will result in a non-inflationary expansion of real output.

answer

AD1 to AD2

question

Beginning at the equilibrium position shown by AS1 and AD1, in Figure 4, which single movement could account for stagflation?

answer

AS1 to AS3

question

Which of the following is a basic part of the Classical School of economic thought?

answer

Prices and wages are flexible

question

In the crude equation of exchange where MV=PY:

answer

Monetarists believe V is stable.

question

Which of the following is most likely to cause an increase in the long run aggregate supply curve?

answer

an increase in literacy levels of the population

question

If an economy was operating at an equilibrium level of output at $3,000 billion and full employment equilibrium was $4,000 billion, with a marginal propensity to save of .2, a Keynesian economist would recommend:

answer

Decrease taxes by $250 billion

question

An adverse supply shock:

answer

Cannot be anticipated but decreases aggregate supply.

question

All of the following are currently part of the United States money supply EXCEPT:

answer

Credit cards

question

If the Federal Reserve sells bonds in the open market, which of the following will result?

answer

Decreased money supply and higher interest rates

question

Based on the data from the table below we can conclude that: Output per Unit of Labor Input England Portugal Cloth 20 24 Wine 2 12

answer

England has a comparative advantage in cloth and Portugal has a comparative advantage in wine

question

On day 1, it cost $.7354 U.S. to buy one Canadian dollar. How many Canadian dollars would $1 U.S. buy?

answer

1.36

question

On the next day (see question 43) it cost $.845 U.S. to buy one Canadian dollar. From this information we can conclude that:

answer

The U.S. dollar got weaker and U.S. exports will rise.

question

Suppose that the Fed decides to decrease the growth rate of the money supply in the U.S. What is most likely to happen to the U.S. trade deficit, and to GDP?

answer

The trade deficit will rise, GDP will fall.

question

Gross Domestic Product

answer

is the sum of the total spending on all final-user goods and services produced domestically during a period.

question

Which of the following is/are correct? (X) Your spouse cleans your house every Thursday. (Y) You sell your old economics book for $25. (Z) Your economic textbook is revised and you buy a new edition.

answer

Only (Z) increases GDP

question

which of the following best illustrates the difference between GDP and GNP?

answer

GDP measures the output produced within the borders of a country, while GNP measures output produced by the citizens of a country.

question

If decision makers underestimate inflation, the real wage will

answer

fall, reducing unemployment.

question

Which of the following will most likely occur during the expansionary phase of the business cycle?

answer

Real GDP rises and unemployment falls.

question

Frictional unemployment

answer

is present even when labor markets are working well

question

Population = 50 mill Number in the labor force = 30 mill Number employed full time = 20 mill Number unemployed = 2 mill Based on the data in Figure 5, what is the labor force participation rate of the economy?

answer

60 percent

question

Population = 50 mill Number in the labor force = 30 mill Number employed full time = 20 mill Number unemployed = 2 mill Based on the data in Figure 5, what is the unemployment rate of the economy?

answer

6.7 percent

question

Given the aggregate demand and aggregate supply conditions depicted in Figure 6 which for the following is most likely?

answer

lower resource prices, which will reduce costs and shift SRAS to the right until full-employment is achieved.

question

If the consumer price index (CPI) were 131 at year-end 1999 and 125 at year-end 1998, then inflation during 1999 was

answer

4.8 percent

question

Which of the following best expresses the central idea of counter cyclical fiscal policy?

answer

Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.

question

Although the economy was in the Great Depression, the Hoover administration followed a fiscal policy of balancing the budget. a Keynesian would have found this policy

answer

inappropriate, because it probably would further depress aggregate demand, economic activity and employment.

question

If debit cards become more widely used by consumers and businesses, which for the following is most likely to happen?

answer

Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions.

question

International trade can be mutually advantageous because it

answer

Both A (allows each trading partner to specialize more fully in the production of those things that it does best) and C (permits the trading partners to expand their joint output) are ture; B is false

question

Compared to the no-trade situation, when a country imports a good

answer

domestic consumers gain, domestic producers lose, and gains outweigh the losses.

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