ECON 2030 online LSU independent and distant learning – Flashcards
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GDP is defined as the:
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value of all final goods and services produced within a country in a given period of time
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Which of the following transactions would be included in GDP for 2010? A. In February 2010, Amanda buys a ticket to visit a zoo in Florida. She visits the zoo in April 2011. B. In February 2010, Amanda sells a 1996 Honda Accord to Isabella. C. In December 2010, Isabella eats onions that she harvested from her backyard garden in October 2010. D. All of the above are correct.
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In February 2010, Amanda buys a ticket to visit a zoo in Florida. She visits the zoo in April 2011.
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Which of the following is included in the investment component of GDP? A. spending on stocks and bonds but not spending on new residential construction B. spending on new residential construction but not spending on stocks and bonds C. spending on new residential construction and spending on stocks and bonds D. neither spending on stocks and bonds nor spending on new residential construction
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pending on new residential construction but not spending on stocks and bonds
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Which of the following items is counted as part of government purchases? A. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards. B. The state of Nebraska pays $1,000 to help a low-income family pay its medical bills. C. The federal government pays $2,000 in Social Security benefits to a retired person. D. All of the above are correct.
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The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards.
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Changes in real GDP reflect:
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only changes in the amounts being produced
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If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is:
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120, and this indicates that the price level has increased by 20 percent since the base year
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International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with:
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longer life expectancy and a higher percentage of the population that is literate
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The price index was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was about:
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6.7 percent between the first and second years, and 9.4 percent between the second and third years
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Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index: A. overstates this price decrease due to the income bias B. overstates this price decrease due to the substitution bias C. reflects this price decrease accurately D. understates this price decrease due to the substitution bias.
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understates this price decrease due to the substitution bias.
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A decrease in the price of domestically produced industrial robots will be reflected in: A. the GDP deflator but not in the consumer price index B. both the GDP deflator and the consumer price index C. neither the GDP deflator nor the consumer price index D. the consumer price index but not in the GDP deflator.
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A. the GDP deflator but not in the consumer price index
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In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover's 1931 salary was equivalent to a 2009 salary of about: A. $1,140,000 B. $5,507 C. $15,525,000 D. $1,058,388.
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D. $1,058,388.
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Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power? A. $79,200 B. $52,000 C. $100,000 D. $23,040
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C. $100,000
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If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is: A. −4 percent B. 8 percent C. 4 percent D. 2 percent.
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D. 2 percent.
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Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct? A. Ms. Lane's repayment will give the bank the same purchasing power that it originally loaned her. B. Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her. C. Ms. Lane will repay the bank fewer dollars than she initially borrowed. D. Ms. Lane's repayment will give the bank greater purchasing power than it originally loaned her.
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B. Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.
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To be counted as employed in the U.S. labor force statistics a person: A. does not have to be working for pay if they are working for a family business, but must be employed full time B. must be working for pay, but does not have to be working full time C. must be working for pay and be working full time D. does not have to be working for pay if they are working for a family business and does not have to be working full time.
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D. does not have to be working for pay if they are working for a family business and does not have to be working full time.
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Jill does not currently have a job, but has applied for several jobs in the previous week. Ken is an unpaid stay-at-home dad who has not searched for work in recent years. Who does the BLS count as out of the labor force? A. Jill but not Ken B. Ken but not Jill C. Jill and Ken D. neither Jill nor Ken
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B. Ken but not Jill
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In June 2009, the BLS reported a U.S. foreign-born population of 35.3 million. Of these, 22.7 million were employed and 1.4 million were unemployed. Based on these numbers what were the unemployment rate and the labor-force participation rate of the foreign-born U.S. population? A. 1.4/35.3 and 22.7/35.3 B. 1.4/35.3 and 24.1/35.3 C. 1.4/24.1 and 22.7/24.1 D. None of the above are correct.
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D. None of the above are correct.
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If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is: A. search unemployment amounting to 0.5 percent of the labor force B. structural unemployment amounting to 0.5 percent of the labor force C. cyclical unemployment amounting to 0.5 percent of the labor force D. frictional unemployment amounting to 0.5 percent of the labor force.
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C. cyclical unemployment amounting to 0.5 percent of the labor force
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Some individuals would like to have a job, but they have given up looking for a job after an unsuccessful search. These individuals are called: A. detached workers, and they are not classified by the Bureau of Labor Statistics as unemployed B. detached workers, and they are classified by the Bureau of Labor Statistics as unemployed C. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed D. discouraged workers, and they are classified by the Bureau of Labor Statistics as unemployed.
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C. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed
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Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year? A. 10 percent B. 2 percent C. 12 percent D. 4 percent
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B. 2 percent
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For a given year, productivity in a particular country is most closely matched with that country's: A. level of real GDP over that year B. growth rate of real GDP per person over that year C. growth rate of real GDP divided by hours worked over that year D. level of real GDP divided by hours worked over that year.
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D. level of real GDP divided by hours worked over that year.
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Which of the following best states economists' understanding of the facts concerning the relationship between natural resources and economic growth? A. Differences in natural resources have virtually no role in explaining differences in standards of living. B. A country with no or few domestic natural resources is destined to be poor. C. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living. D. Some countries can be rich mostly because of their natural resources and countries without natural resources need not be poor, but can never have very high standards of living.
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C. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living.
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Ryan plans on going to go to study engineering. What he learns about existing information increases: A. both technological knowledge and human capital B. technological knowledge but not human capital C. human capital but not technological knowledge D. neither technological knowledge nor human capital.
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C. human capital but not technological knowledge
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Which of the following statements about inputs is correct? A. A forest is an example of a natural resource; it is also an example of a renewable resource. B. Human capital is a non-produced factor of production. C. Physical capital is a non-produced factor of production. D. There is no distinction between human capital and technological knowledge.
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A. A forest is an example of a natural resource; it is also an example of a renewable resource.
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Accumulating capital: A. involves no tradeoffs B. requires that society sacrifice consumption goods in the present C. decreases saving rates D. allows society to consume more in the present.
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B. requires that society sacrifice consumption goods in the present
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Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then: A. output in country A increases by the same amount as in country B B. output in country A increases by less than in country B C. output in country A increases by more than in country B D. None of the above is necessarily correct.
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C. output in country A increases by more than in country B
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The traditional view of the production process is that capital is subject to: A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries B. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries C. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries D. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
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A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries
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If an American-based firm opens and operates a new watch factory in Panama, then it is engaging in: A. foreign portfolio investment B. foreign financial investment C. foreign direct investment D. indirect foreign investment.
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C. foreign direct investment
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In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in: A. foreign indirect investment B. indirect domestic investment C. foreign portfolio investment D. foreign direct investment.
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C. foreign portfolio investment
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Suppose U.S. based Intel Corporation builds and operates a new computer chip factory in Ghana. Future production from such an investment would: A. increase Ghanaian GNP more than it would increase Ghanaian GDP B. have no affect on either Ghanaian GDP or GNP C. not affect Ghanaian GNP, but would increase Ghanaian GDP D. increase Ghanaian GDP more than it would increase Ghanaian GNP.
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D. increase Ghanaian GDP more than it would increase Ghanaian GNP
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Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably: A. raise neither productivity nor real GDP per person in Eurnesia B. raise real GDP per person but not productivity in Eurnesia C. raise productivity but not real GDP per person in Eurnesia D. raise real GDP per person and productivity in Eurnesia.
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D. raise real GDP per person and productivity in Eurnesia.
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Inventors often obtain patents on new products and processes, thereby turning new ideas into: A. public goods but decreasing the incentive to engage in research B. private goods and increasing the incentive to engage in research C. public goods and increasing the incentive to engage in research D. private goods but decreasing the incentive to engage in research.
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B. private goods and increasing the incentive to engage in research
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In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have: A. decreased productivity and real GDP per person B. increased productivity but decreased real GDP per person C. increased productivity and real GDP per person D. increased real GDP per person, but decreased productivity.
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. increased productivity and real GDP per person
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Which of the following is true? A. Malthus argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Kremer argued that increasing population would outstrip agricultural production. B. Malthus argued that increases in population would reduce the amount of human and physical capital per worker so that eventually the standard of living would decline. Kremer argued that increases in technology would allow increased output growth so that even with population growth, society would enjoy a higher standard of living. C. Kremer argued that increases in population would reduce the amount of human and physical capital per worker so that eventually the standard of living would decline. Malthus argued that increases in technology would allow increased output growth so that even with population growth, society would enjoy a higher standard of living. D. Kremer argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Malthus argued that increasing population would outstrip agricultural production.
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D. Kremer argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Malthus argued that increasing population would outstrip agricultural production.
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We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that: A. Bond A has a term of 20 years and Bond B has a term of 2 years B. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation C. the credit risk associated with Bond A is lower than the credit risk associated with Bond B D. All of the above are correct.
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A. Bond A has a term of 20 years and Bond B has a term of 2 years
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We associate the term debt finance with: A. the bond market, and we associate the term equity finance with the stock market B. financial intermediaries, and we associate the term equity finance with financial markets C. the stock market, and we associate the term equity finance with the bond market D. financial markets, and we associate the term equity finance with financial intermediaries.
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A. the bond market, and we associate the term equity finance with the stock market
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Short-term bonds are generally: A. more risky than long-term bonds and so they feature lower interest rates B. less risky than long-term bonds and so they feature higher interest rates C. less risky than long-term bonds and so they feature lower interest rates D. more risky than long-term bonds and so they feature higher interest rates.
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C. less risky than long-term bonds and so they feature lower interest rates
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Other things the same, which bond would you expect to pay the highest interest rate? A. a bond issued by the state of Montana B. a bond issued by Microsoft Corporation C. a bond issued by the U.S. government D. a bond issued by a new chain of Brazilian-style restaurants
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D. a bond issued by a new chain of Brazilian-style restaurants
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Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause: A. the demand for this company's stock to decrease, so the price would rise B. the supply of this company's stock to decrease, so the price would fall C. the supply of this company's stock to decrease, so the price would rise D. the demand for this company's stock to decrease, so the price would fall.
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. the demand for this company's stock to decrease, so the price would fall.
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Compared to bondholders, stockholders: A. face higher risk but receive a fixed payment B. face lower risk but receive a fixed payment C. face lower risk and have the potential for higher returns D. face higher risk and have the potential for higher returns.
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D. face higher risk and have the potential for higher returns.
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Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is: A. 1.6 percent B. 0.4 percent C. 2.8 percent D. 2.0 percent.
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A. 1.6 percent
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A mutual fund: A. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit B. is funds set aside by local governments to lend to small firms who want to C. invest in projects that are mutually beneficial to the firm and community D. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
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A. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds
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Which of the following equations represents GDP for an open economy? A. Y = C + I + G B. NX = I - G C. Y = C + I + G + NX D. I = Y - C + G + NX
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C. Y = C + I + G + NX
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Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving? A. 1,000 and -500, respectively B. 1,500 and 500, respectively C. 1,500 and -500, respectively D. 1,000 and 500, respectively
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C. 1,500 and -500, respectively
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Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries. A. Fran is saving; Miller is investing. B. Fran and Miller are both saving. C. Fran and Miller are both investing. D. Fran is investing; Miller is saving.
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A. Fran is saving; Miller is investing.
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In a closed economy, if Y, C, and T remained the same, an increase in G would reduce: A. public saving but not private saving B. private saving and public saving C. private saving but not public saving D. neither private nor public saving.
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A. public saving but not private saving
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The slope of the demand for loanable funds curve represents the: A. positive relation between the real interest rate and investment B. negative relation between the real interest rate and saving C. positive relation between the real interest rate and saving D. negative relation between the real interest rate and investment.
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D. negative relation between the real interest rate and investment.
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If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied: A. there is a surplus and the interest rate is below the equilibrium level B. there is a surplus and the interest rate is above the equilibrium level C. there is a shortage and the interest rate is below the equilibrium level D. there is a shortage and the interest rate is above the equilibrium level.
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C. there is a shortage and the interest rate is below the equilibrium level
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A. If there is a shortage of loanable funds, then: the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium B. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium C. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium D. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.
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the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium
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If the demand for loanable funds shifts to the left, then the equilibrium interest rate: A. falls and the quantity of loanable funds rises B. rises and the quantity of loanable funds falls C. and quantity of loanable funds rise D. and quantity of loanable funds fall.
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D. and quantity of loanable funds fall.
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Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts? A. the interest rate would decrease and the quantity of loanable funds would increase B. the interest rate and quantity of loanable funds would increase C. the interest rate and quantity of loanable funds would decrease D. the interest rate would increase and the quantity of loanable funds would decrease
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A. the interest rate would decrease and the quantity of loanable funds would increase
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Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate: A. would decrease and investment would increase B. would increase and investment would decrease C. and investment both would increase D. and investment both would decrease.
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A. would decrease and investment would increase
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If the budget deficit increases then: A. saving falls and the interest rate rises B. saving rises and the interest rate falls C. saving and the interest rate rise D. saving and the interest rate falls.
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A. saving falls and the interest rate rises
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Other things the same, an increase in government expenditures with no change in taxes makes national saving: A. fall. The supply of loanable funds shifts left B. rise. The supply of loanable funds shifts right C. fall. The demand for loanable funds shifts left D. rise. The demand for loanable funds shifts right.
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A. fall. The supply of loanable funds shifts left
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Which of the following functions of money is also a common function of most other financial assets? A. medium of exchange B. a store of value C. a unit of account D. None of the above is correct.
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B. a store of value
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Money is: A. the most liquid asset and a perfect store of value B. not the most liquid asset but a perfect store of value C. neither the most liquid asset nor a perfect store of value D. the most liquid asset but an imperfect store of value.
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D. the most liquid asset but an imperfect store of value.
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Fiat money: A. is any close substitute for currency such as checkable deposits B. is backed by gold C. has no intrinsic value D. is a medium of exchange but not a unit of account.
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C. has no intrinsic value
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The measure of the money stock called M1 includes: A. wealth held by people in their savings accounts B. wealth held by people in their checking accounts C. wealth held by people in money market mutual funds D. everything that is included in M2 plus some additional items.
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B. wealth held by people in their checking accounts
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Which of the following is included in both M1 and M2? A. money market mutual funds B. small time deposits C. savings deposits D. demand deposits
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D. demand deposits
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Which of the following does the Federal Reserve not do? A. It tries to ensure the health of the banking system. B. It makes loans to any qualified business that requests one. C. It controls the supply of money. D. It acts as a lender of last resort to banks.
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B. It makes loans to any qualified business that requests one.
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When conducting an open-market sale, the Fed: A. sells government bonds, and in so doing decreases the money supply B. buys government bonds, and in so doing decreases the money supply C. buys government bonds, and in so doing increases the money supply D. sells government bonds, and in so doing increases the money supply.
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A. sells government bonds, and in so doing decreases the money supply
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In a 100 percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then: A. M1 would not change B. M1 would increase C. M1 might rise or fall D. M1 would decrease.
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A. M1 would not change
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A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to: A. $95 B. $50 C. $5 D. $950.
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B. $50
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A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement. A. It has $40 in reserves and $3,960 in loans. B. It has $444 in reserves and $3,556 in loans. C. It has $400 in reserves and $3,600 in loans. D. None of the above is correct.
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C. It has $400 in reserves and $3,600 in loans.
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If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would: A. rise from 5 to 10 B. rise from 10 to 20 C. not change D. fall from 10 to 5.
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D. fall from 10 to 5.
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If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to: A. $200 of new money B. $20,000 of new money C. $2,000 of new money D. None of the above is correct.
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B. $20,000 of new money
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When the Fed conducts open market sales: A. it sells Treasury securities, which increases the money supply B. it auctions term loans, which increases the money supply C. it sells Treasury securities, which decreases the money supply D. it auctions term loans, which decreases the money supply.
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C. it sells Treasury securities, which decreases the money supply
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When the Fed decreases the discount rate, banks will: A. borrow less from the Fed and lend more to the public. The money supply increases B. borrow more from the Fed and lend less to the public. The money supply decreases C. borrow more from the Fed and lend more to the public. The money supply increases D. borrow less from the Fed and lend less to the public. The money supply decreases.
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C. borrow more from the Fed and lend more to the public. The money supply increases
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The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves? A. $25.5 million B. $19.5 million C. $15 million D. $30 million
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C. $15 million
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The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do? A. buy bonds to decrease reserves B. sell bonds to increase reserves C. sell bonds to decrease reserves D. buy bonds to increase reserves
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D. buy bonds to increase reserves
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During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action: A. decreases the money multiplier and decreases the money supply B. does not change the money multiplier, but decreases the money supply C. does not change the money multiplier, but increases the money supply D. increases the money multiplier and increases the money supply.
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A. decreases the money multiplier and decreases the money supply
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A problem that the Fed faces when it attempts to control the money supply is that: A. the Fed does not control the amount of money that households choose to hold as deposits in banks B. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools C. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount D. the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy.
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A. the Fed does not control the amount of money that households choose to hold as deposits in banks
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Which of the following is not a tool of monetary policy? A. reserve requirements B. changing the discount rate C. increasing the government budget deficit D. open market operations
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C. increasing the government budget deficit
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The federal funds rate is the: A. percentage of deposits that banks must hold as reserves B. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities C. interest rate at which banks lend reserves to each other overnight D. interest rate at which the Federal Reserve makes short-term loans to banks.
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C. interest rate at which banks lend reserves to each other overnight
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When the price level rises, the number of dollars needed to buy a representative basket of goods: A. increases, and so the value of money falls B. decreases, and so the value of money rises C. increases, and so the value of money rises D. decreases, and so the value of money falls.
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A. increases, and so the value of money falls
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If P denotes the price of goods and services measured in terms of money, then: A. the supply of money influences the value of P, but the demand for money does not B. P can be interpreted as the inflation rate C. 1/P represents the value of money measured in terms of goods and services D. All of the above are correct.
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1/P represents the value of money measured in terms of goods and services
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When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases? A. the quantity of money demanded and the quantity of money supplied B. the quantity of money demanded but not the quantity of money supplied C. neither the quantity of money supplied nor the quantity of money demanded D. the quantity of money supplied but not the quantity of money demanded
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B. the quantity of money demanded but not the quantity of money supplied
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When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the: A. left, raising the price level B. right, lowering the price level C. left, lowering the price level D. right, raising the price level.
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D. right, raising the price level.
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On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store. A. The $80 is a nominal variable. The quantity of shoes is a real variable. B. Both the $80 and the quantity of shoes are real variables. C. The $80 is a real variable. The quantity of shoes is a nominal variable. D. Both the $80 and the quantity of shoes are nominal variables.
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A. The $80 is a nominal variable. The quantity of shoes is a real variable.
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The classical dichotomy refers to the idea that the supply of money: A. is irrelevant for understanding the determinants of nominal and real variables B. determines real variables, but not nominal variables C. determines nominal variables, but not real variables D. is a determinant of both real and nominal variables.
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C. determines nominal variables, but not real variables
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If M = 3,000, P = 2, and Y = 12,000, what is velocity? A. 4 B. 2 C. 1/2 D. 8
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D. 8
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If velocity and output were nearly constant, then: A. the inflation rate would be much higher than the money supply growth rate B. the inflation rate would be much lower than the money supply growth rate C. the inflation rate would be about the same as the money supply growth rate D. any of the above would be possible.
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C. the inflation rate would be about the same as the money supply growth rate
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The evidence from hyperinflations indicates that money growth and inflation: A. are not related in a discernible fashion, which is consistent with the quantity theory of money B. are not related in a discernible fashion, which is not consistent with the quantity theory of money C. are positively related, which is consistent with the quantity theory of money D. are positively related, which is not consistent with the quantity theory of money.
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C. are positively related, which is consistent with the quantity theory of money
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Printing money to finance government expenditures: A. is the principal method by which the U.S. government finances its expenditures B. causes the value of money to rise C. imposes a tax on everyone who holds money D. None of the above is correct.
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C. imposes a tax on everyone who holds money
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Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of: A. 5 percent and a real interest rate of 2 percent B. 3.5 percent and a real interest rate of 5 percent C. 3.5 percent and a real interest rate of 2 percent D. 5 percent and a real interest rate of 3.5 percent.
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C. 3.5 percent and a real interest rate of 2 percent
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If a country experienced deflation, then: A. the real interest rate would equal the nominal interest rate B. the nominal interest rate would be greater than the real interest rate C. the real interest rate would be greater than the nominal interest rate D. None of the above is necessarily correct.
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C. the real interest rate would be greater than the nominal interest rate
question
Shoeleather cost refers to: A. the cost of more frequent price changes induced by higher inflation B. the tendency to expend more effort searching for the lowest price when inflation is high C. resources used to maintain lower money holdings when inflation is high D. the distortion in resource allocation created by distortions in relative prices due to inflation.
answer
C. resources used to maintain lower money holdings when inflation is high
question
When inflation rises, firms make: A. less frequent price changes. This reduces their menu costs B. more frequent price changes. This reduces their menu costs C. more frequent price changes. This raises their menu costs D. less frequent price changes. This raises their menu costs.
answer
C. more frequent price changes. This raises their menu costs
question
Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes? A. capital gains but not interest income B. neither interest income nor capital gains C. interest income but not capital gains D. both interest income and capital gains
answer
B. neither interest income nor capital gains
question
Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest? A. Inflation is 3 percent; the tax rate is 20 percent. B. Inflation is 2 percent; the tax rate is 30 percent. C. Inflation is 4 percent; the tax rate is 5 percent. D. The after-tax real interest rate is the same for all of the above.
answer
C. Inflation is 4 percent; the tax rate is 5 percent.
question
Wealth is redistributed from debtors to creditors when inflation was expected to be: A. high and it turns out to be low B. low and it turns out to be low C. high and it turns out to be high D. low and it turns out to be high.
answer
D. low and it turns out to be high.
question
If the economy unexpectedly went from inflation to deflation: A. debtors would gain at the expense of creditors B. creditors would gain at the expense of debtors C. both debtors and creditors would have reduced real wealth D. both debtors and creditors would have increased real wealth.
answer
B. creditors would gain at the expense of debtors
question
You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced: A. a nominal loss and a real gain B. a nominal gain and a real loss C. both a nominal gain and a real gain D. both a nominal loss and a real loss.
answer
A. a nominal loss and a real gain
question
During recessions which type of spending falls? A. consumption but not investment B. consumption and investment C. investment but not consumption D. neither consumption nor investment
answer
B. consumption and investment
question
As recessions begin, production: A. falls and unemployment rises B. and unemployment both rise C. and unemployment both fall D. rises and unemployment falls.
answer
A. falls and unemployment rises
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: A. the short run, but not the long run B. both the short run and the long run C. the long run, but not the short run D. neither the long run nor the short run.
answer
C. the long run, but not the short run
question
Changes in the price level affect which components of aggregate demand? A. only investment B. only consumption and net exports C. only consumption and investment D. consumption, investment, and net exports
answer
D. consumption, investment, and net exports
question
Other things the same, if the price level falls, domestic interest rates: A. rise, so domestic residents will want to hold fewer foreign bonds B. fall, so domestic residents will want to hold fewer foreign bonds C. fall, so domestic residents will want to hold more foreign bonds D. rise, so domestic residents will want to hold more foreign bonds.
answer
C. fall, so domestic residents will want to hold more foreign bonds
question
As the price level falls: A. the exchange rate falls, so net exports fall B. the exchange rate falls, so net exports rise C. the exchange rate rises, so net exports rise D. the exchange rate rises, so net exports fall.
answer
B. the exchange rate falls, so net exports rise
question
A decrease in U.S. interest rates leads to: A. a depreciation of the dollar that leads to smaller net exports B. a depreciation of the dollar that leads to greater net exports C. an appreciation of the dollar that leads to greater net exports D. an appreciation of the dollar that leads to smaller net exports.
answer
B. a depreciation of the dollar that leads to greater net exports
question
Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to: A. increase consumption, which shifts aggregate supply right B. decrease consumption, which shifts aggregate demand left C. increase consumption, which shifts aggregate demand right D. decrease consumption, which shifts aggregate supply left.
answer
B. decrease consumption, which shifts aggregate demand left
question
When the money supply decreases: A. interest rates rise and so aggregate demand shifts left B. interest rates fall and so aggregate demand shifts left C. interest rates fall and so aggregate demand shifts right D. interest rates rise and so aggregate demand shifts right.
answer
A. interest rates rise and so aggregate demand shifts left
question
The long-run aggregate supply curve shifts left if: A. the government removes some environmental regulations that limit production methods B. there is a natural disaster C. the capital stock increases D. None of the above is correct.
answer
B. there is a natural disaster
question
Other things the same, continued increases in the money supply lead to: A. continued increases in real GDP but not continued increases in the price level B. a one-time permanent increase in both prices and real GDP C. continued increases in the price level but not continued increases in real GDP D. continued increases in the price level and real GDP.
answer
C. continued increases in the price level but not continued increases in real GDP
question
An increase in the expected price level shifts the: A. short run and long run aggregate supply curves left B. the long run but not the short run aggregate supply curve left C. the short run but not the long run aggregate supply curve left D. neither the long run nor the short run aggregate supply curve left.
answer
C. the short run but not the long run aggregate supply curve left
question
Which of the following shifts both short run and long run aggregate supply left? A. a decrease in the capital stock B. a decrease in the actual price level C. a decrease in the expected price level D. a decrease in the money supply
answer
A. a decrease in the capital stock
question
In which case can we be sure real GDP rises in the short run? A. foreign economies contract and taxes fall B. foreign economies expand and taxes fall C. foreign economies expand and taxes rise D. None of the above are correct.
answer
B. foreign economies expand and taxes fall
question
An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level: A. rises, shifting aggregate demand left B. falls, shifting aggregate supply right C. falls, shifting aggregate supply left D. rises, shifting aggregate demand right.
answer
B. falls, shifting aggregate supply right
question
Suppose that during the Great Depression long run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand? A. It would have to have shifted right by more than aggregate supply. B. It would have to have shifted left by more than aggregate supply. C. It would have to have shifted left by less than aggregate supply. D. It would have to have shifted right by less than aggregate supply.
answer
B. It would have to have shifted left by more than aggregate supply.
question
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift: A. aggregate demand to the right B. aggregate demand to the left C. aggregate supply to the left D. aggregate supply to the right.
answer
A. aggregate demand to the right
question
Which of the following would cause stagflation? A. aggregate demand shifts right B. aggregate supply shifts right C. aggregate demand shifts left D. aggregate supply shifts left
answer
D. aggregate supply shifts left
question
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate demand curve? A. the interest rate effect B. the wealth effect C. the exchange rate effect D. the real wage effect
answer
A. the interest rate effect
question
Using the liquidity preference model, when the Federal Reserve increases the money supply: A. the long run aggregate supply curve shifts to the right B. the equilibrium interest rate decreases C. the aggregate demand curve shifts to the left D. the quantity of goods and services demanded is unchanged for a given price level.
answer
B. the equilibrium interest rate decreases
question
If expected inflation is constant, then when the nominal interest rate falls, the real interest rate: A. falls by the change in the nominal interest rate B. rises by more than the change in the nominal interest rate C. falls by more than the change in the nominal interest rate D. rises by the change in the nominal interest rate.
answer
D. rises by the change in the nominal interest rate.
question
In which of the following cases would the quantity of money demanded be largest? A. r = 0.04, P = 1.2 B. r = 0.03, P = 1.3 C. r = 0.03, P = 1.2 D. r = 0.05, P = 0.9
answer
B. r = 0.03, P = 1.3
question
Other things equal, in the short run a higher price level leads households to: A. increase consumption and firms to buy fewer capital goods B. decrease consumption and firms to buy fewer capital goods C. increase consumption and firms to buy more capital goods D. decrease consumption and firms to buy more capital goods.
answer
B. decrease consumption and firms to buy fewer capital goods
question
In the short run, a decrease in the money supply causes interest rates to: A. decrease, and aggregate demand to shift left B. increase, and aggregate demand to shift right C. decrease, and aggregate demand to shift right D. increase, and aggregate demand to shift left.
answer
D. increase, and aggregate demand to shift left.
question
Suppose that the Federal Reserve is concerned about the effects of rising stock prices on the economy. What could it do? A. buy bonds to raise the interest rate B. buy bonds to lower the interest rate C. sell bonds to raise the interest rate D. sell bonds to lower the interest rate
answer
C. sell bonds to raise the interest rate
question
Which of the following sequences best explains the negative slope of the aggregate demand curve? A. price level ↓» demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↑ B. price level ↑ » demand for money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ C. price level ↓ » equilibrium interest rate ↓ » demand for money ↑ » quantity of goods and services demanded ↑ D. price level ↑ » demand for money ↑ » equilibrium interest rate ↓ » quantity of goods and services demanded ↓
answer
A. price level ↓» demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↑
question
In the long run, fiscal policy influences: A. technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services C. the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function D. saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function.
answer
B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services
question
Which of the following events shifts aggregate demand rightward? A. an increase in government expenditures, but not a change in the price level B. a decrease in the price level, but not an increase in government expenditures C. a decrease in government expenditures or an increase in the price level D. an increase in government expenditures or a decrease in the price level
answer
D. an increase in government expenditures or a decrease in the price level
question
If taxes: A. increase, then consumption increases, and aggregate demand shifts rightward B. decrease, then consumption decreases, and aggregate demand shifts rightward C. increase, then consumption decreases, and aggregate demand shifts leftward D. decrease, then consumption increases, and aggregate demand shifts leftward.
answer
C. increase, then consumption decreases, and aggregate demand shifts leftward
question
Which of the following sequences best represents the crowding out effect? A. government purchases ↓ » GDP ↓ » demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↓ B. government purchases ↑ » GDP ↑ » demand for money ↑ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ C. taxes ↑ » GDP ↓ » demand for money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ » D. government purchases ↑ » GDP ↑ » supply of money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓
answer
B. government purchases ↑ » GDP ↑ » demand for money ↑ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓
question
Permanent tax cuts shift the AD curve: A. not as far to the left as do temporary tax cuts B. farther to the right than do temporary tax cuts C. not as far to the right as do temporary tax cuts D. farther to the left than do temporary tax cuts.
answer
B. farther to the right than do temporary tax cuts
question
Supply side economists believe that a reduction in the tax rate: A. would decrease consumption B. always decreases government tax revenue C. shifts the aggregate supply curve to the right D. provides no incentive for people to work more.
answer
C. shifts the aggregate supply curve to the right
question
Monetary policy: A. cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward B. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented C. can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented D. cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.
answer
B. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented
question
What actions could be taken to stabilize output in response to a large decrease in U.S. net exports? A. increase government expenditures or decrease the money supply B. decrease government expenditures or decrease the money supply C. decrease government expenditures or increase the money supply D. increase government expenditures or increase the money supply
answer
D. increase government expenditures or increase the money supply
question
Critics of stabilization policy argue that: A. policy affects aggregate demand with a lag, and the effects on aggregate demand are long lived B. policy does not affect aggregate demand C. policy affects aggregate demand with a lag, but the effects are short lived D. policy affects aggregate demand quickly, but the effects on aggregate demand are long lived.
answer
A. policy affects aggregate demand with a lag, and the effects on aggregate demand are long lived
question
Automatic stabilizers: A. increase the problems that lags cause in using fiscal policy as a stabilization tool B. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession C. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession D. All of the above are correct.
answer
C. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession
