question

Sources of funds for investment spending are:

answer

savings by households, government, and foreigners

question

A bank run occurs when:

answer

many bank depositors are trying to withdraw their funds from the bank

question

Scarcity in economics means:

answer

not having sufficient resources to produce all the goods and services we want

question

If they spend all night writing computer programs, Laurence can write 10 programs while Carrie Anne can write 5. If they spend all night making sunglasses, Laurene can make 6 while Carrie Anne can make 4. We know that:

answer

Laurence has a comparative advantage in programs

question

If the planned aggregate spending rises by $10 billion and the MPC is .75, then equilibrium GDP changes by:

answer

$40 billion

question

Money that has value apart from its use as money is:

answer

commodity money

question

Which of the following would NOT qualify as physical capital?

answer

mineral deposits

question

The relationship between the output gap and the cyclical unemployment is known as the:

answer

Okun's law

question

A cyclically-adjusted budget balance:

answer

is an estimate of what the budget balance would be if real GDP were equal to potential output

question

Among the assets of a bank are:

answer

loans

question

In the long run, any given percentage increase in the money supply:

answer

leads to an equal percentage increase in the overall price level

question

A cap and trade system:

answer

reduces climate change by requiring individuals and firms to buy licenses in order to emit greenhouse gases

question

The Fed monetizes the debt when it:

answer

prints money and buys government debt from the public

question

According to the short-run Phillips curve, when actual real GDP is _____ potential output, the price level ______ and the unemployment rate falls.

answer

above; increases

question

Assume two countries on a peninsula. The first has real GDP per capita growth rate of 2% and its neighbor to the south is growing at 5%. How must more likely in years ill the country in the south double its GDP per capita compared to its neighbor in the north?

answer

21 years

question

When the basic equation of national i come accounting shows: GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

answer

C

question

The aggregate demand curve shows the relationship between the aggregate price level and:

answer

the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world

question

Suppose that this economy currently has an unemployment rate of 6%, inflation of 0%, and no expectation of future inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls to 4%, then inflation would:

answer

increase to 2%

question

A key insight into macroeconomics is that in the short run the combined effect of individual decisions is:

answer

very different from what any one individual intended

question

Efficient production exists when the economy is:

answer

operating on its production possibility frontier

question

Banks create money when they:

answer

make loans

question

Inflation is a situation where:

answer

the average price level increases

question

Which of the following choices would be a factor that contributes to a nation's rapid long-run economic growth?

answer

Faster technological progress

question

The key factor explaining the poor growth performance of the African continent is probably:

answer

the lack of political stability within countries

question

An advantage of stabilizing macroeconomic policy over economic self-correction is that:

answer

economic self-correction can take several years

question

Suppose the Fed has set a target for the federal funds rate. If initially the equilibrium interest rate happens to be higher than the target interest rate, then the Fed should:

answer

purchase treasury bills in the open market, increase money supply, shifts the supply of money curve to the right, and lower the interest rate to the target rate

question

Specialization and trade should lead to all of the following except:

answer

a decrease in total economic output

question

If the Federal Reserve sets the federal funds rate on the basis of inflation and output gap, then the Fed is following:

answer

the Taylor rule

question

Which of the following is a chief measure of economic growth over time?

answer

increases in real per capita GDP

question

If the economy is in a liquidity trap:

answer

fiscal policy is effective, but monetary policy is not

question

The convergence hypothesis fits the data only when factors that affect growth are held equal across countries. These factors include all of the following except:

answer

GDP per capita

question

Other things equal, expectations of lower disposable income in the future would ____ and shift the consumption function _____.

answer

decrease autonomous consumption; down

question

The concept of monetary neutrality describes a situation in the long run when:

answer

increases in the money supply have no effect on real variables such as GDP but only raises the price level

question

The mechanism that causes government tax revenue to rise and fall with the business cycle is known as:

answer

an automatic stabilizer

question

The modern tools of macroeconomic policy are:

answer

fiscal policy and monetary policy

question

When the output gap is negative, the actual unemployment rate is:

answer

above the natural rate

question

For an economist, the cost of something is:

answer

what you gave up to get it

question

The marginal propensity to consume is equal to:

answer

the change in consumer spending divided by the change in aggregate disposable income

question

The long-run Phillips curve is vertical at the NAIRU because:

answer

any unemployment rate below the NAIRU will lead to ever-accelerating inflation

question

When the economy is in full employment:

answer

only cyclical unemployment is zero

question

If planned investment spending increases by $100, income-expenditure equilibrium occurs at GDP of:

answer

$2,250

question

The topics studied in macroeconomics include:

answer

inflation

question

Frictional unemployment is:

answer

good since that means people may be seeking jobs that match their job skills

question

The purchase of which of the following goods are included in GDP?

answer

capital goods

question

The natural rate of unemployment is:

answer

equal to the sum of frictional and structural unemployment

question

People who live in households decide to spend less in their day-to-day activities. As a result, this will most likely lead to:

answer

less income for other people in the economy

question

Government borrowing is:

answer

the amount of funds raised by government in the financial markets

question

The national accounts keep track of all except:

answer

exchange rates

question

Contractionary fiscal policy causes the aggregate demand curve to shift to the ____ and is used to close a(n) _____ gap.

answer

left; inflationary

question

In the figure, if Tealand is producing 10 million scones and 10 million cups of tea, then we know that the economy:

answer

is using its resources inefficiently

question

If technology advances:

answer

workers can produce more even with fixed amounts of physical and human capital

question

The value of year 3's output in real dollars is:

answer

$20

question

An increase in interest rates will lead to a(n):

answer

decrease in aggregate demand

question

The major tools of monetary policy available to the Federal Reserve System include:

answer

reserve requirements, open-market operations, and the discount rate

question

Suppose a panel of economists is predicting that a nation's real GDP per capita will have an average annual growth rate of 2%. Based upon the Rule of 70, how many years will it take for this nation's real GDP per capita to double?

answer

35years

question

The primary difference between M1 and M2 is that:

answer

M2 includes savings deposits and time deposits, but M1 does not

question

Gross domestic product is the economy's total production of _____ for a given time period.

answer

final goods and services

question

If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, then, according to this classical model, the SRAS would:

answer

decrease from SRAS1 to SRAS2

question

To decrease the money supply, the central bank could:

answer

make open-market sales

question

Firms pay efficiency wages because:

answer

it reduces the risk of losing the best workers

question

Which of the following is NOT considered one of the three chief characteristics of money?

answer

it is highly illiquid asset

question

Marginal analysis studies how individuals decide:

answer

to do a bit more activity vs. a bit less activity

question

If the labor force is 100 million workers and 5 million are unemployed but actively seeking work, then the unemployment rate is______.

answer

5%

question

A nation's exports minus its imports:

answer

is net exports

question

A decrease in aggregate demand will generate ______ in real GDP and _____ in the price level in the short run.

answer

a decrease; a decrease

question

The inflation tax is:

answer

a decrease in the real value of money held by he public caused by inflation

question

A fall in the market interest rate many any investment project:

answer

more profitable, regardless of whether the funds were borrowed or came from retained earnings

question

If the size of MPS is small, it will:

answer

make the multiplier larger

question

A period of falling real GDP is a(n):

answer

recession

question

When you are using money to purchase a new MP3 player, money is serving as a:

answer

medium of exchange

question

If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______.

answer

increase; decrease

question

Implicit liabilities of a government are:

answer

spending promises, like Social Security benefits, that are effectively debt although no bond is associated with the promise

question

Monetary base is:

answer

the sum of reserves held by the banks and currency in circulation

question

Which of the following will not increase the productivity of labor?

answer

an increase in the size of the labor force

question

Goods and services that are produced in a foreign country but consumed domestically are called:

answer

imports

question

If a high inflation rate leads people to ____ their money holdings, this may lead to further increase in the money supply and _____ inflation.

answer

reduce; higher

question

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

answer

a decrease; no change

question

The nonaccelerating inflation rate of unemployment, or NAIRU is:

answer

the unemployment rate at which inflation does not change over time

question

The aggregate demand curve would shift to the left for all of the following reasons EXCEPT:

answer

lower labor productivity

question

Suppose you are told that the short-run Phillips curve has shifted downward. Which of the following must have happened?

answer

the SRAS curve has shifted to the right (decreased)

question

Banks can lend money because:

answer

they know not everyone wants their deposits back at the same time

question

Currency in the U.S today is _____ money.

answer

fiat

question

Assume that the economy depicted in Panel A is in short-run equilibrium at a real GDP level of Y1. Doing nothing and letting the economy correct itself:

answer

occurs in the long run when wages fall

question

When the Fed buys Treasury bills, this leads to:

answer

an increase in the money supply

question

The simplest circular-flow model shows the interaction between households and firms. In this model:

answer

firms supply goods and services to households, which, in turn, supply factors of production to firms

question

A person who is out of work, would like to work, but has given up looking for work is called:

answer

a discouraged worker

question

An expansion is a period in which:

answer

output rises

question

Suppose that this economy is in equilibrium a E1. If there is an increase in government purchases, then:

answer

AD1 will shift to the right, causing an increase in the price level and an increase in real GDP

question

All of the following are reasons why the average worker in the U.S. today produces more than her or his counterpart a century ago EXCEPT:

answer

the modern worker works longer hours

question

Equilibrium in this money market will occur at interest rate _____ and quantity of money ______.

answer

r1; Q1

question

In the liquidity preference model, the money supply is represented by:

answer

a vertical line

question

The models that economists construct:

answer

usually make simplifying assumptions

question

In the U.S the institution that is charged with determining the size of monetary base and with regulating the banking system is the:

answer

Federal Reserve

question

If an economy has not achieved efficiency, there must exist ways to:

answer

make some people better off without making others worse off

question

The Federal Reserve is able to have an impact on financial crises because the Fed:

answer

conducts monetary policy

question

If real GDP rises while nominal GDP falls, then prices on average have:

answer

fallen

question

Given an inflationary gap, the Fed will use monetary policy to _____ interest rates and _____ aggregate demand.

answer

increase; decrease

question

If the opportunity of cost manufacturing automobiles is lower in the U.S. than in Britain and the opportunity cost of manufacturing airplanes is higher in the U.S. than in Britain, then the U.S. will:

answer

import airplanes from Britain and export automobiles to Britain

question

If inflation increases from 2% to 5%, the money demand curve will:

answer

shift to the right

question

Nominal wages are "sticky" because"

answer

in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment

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