question

A nation that protects its workers from unemployment by limiting the use (by employers) of technological improvements will

answer

grow less rapidly because technological change is an important factor contributing to the growth of output.

question

What is the opportunity cost of an action?

answer

The value of the best opportunity that must be sacrificed in order to take the action.

question

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

answer

Her marginal value of food has fallen to zero.

question

What will people do because information is costly to acquire?

answer

They will rationally choose not to become fully informed when making decisions.

question

The value of a good

answer

depends on many factors, including who uses it and under what circumstances.

question

When economists say the quantity supplied of a product has decreased, they mean the

answer

price of the product has fallen, and consequently, suppliers are producing less of it.

question

Which of the following would decrease the supply of sugar?

answer

The tariff (tax) on imported sugar increases

question

The difference between positive economic statements and normative economic statements is that

answer

positive statements are based on fact while normative statements are based on opinion

question

Which of the following is true of private ownership?

answer

Private ownership links responsibility with the right of control.

question

If Georgia experiences a late frost that damages the peach crop, we should expect the

answer

supply curve for peaches to shift to the left and the price of peaches to rise.

question

Which of the following occurs when a shortage occurs in the market for a good?

answer

Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

question

What will happen if the demand for bicycles increases?

answer

Quantity supplied will increase.

question

Which of the following would reduce the price of DVD players and increase the quantity sold?

answer

an increase in the supply of DVD players

question

The term market always refers to

answer

a group of buyers and sellers of a particular good or service.

question

In a competitive market economy, a resource in short supply will be allocated

answer

to those firms that can make the most profitable use of it.

question

Which of the following statements about trade is true?

answer

The value of a good generally depends on who uses it and circumstances such as when and where it is used.

question

Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

answer

Both parties expect to gain from this transaction.

question

The law of demand refers to the

answer

inverse relationship between the price of a good and the willingness of consumers to buy it.

question

A decrease in the expected future price of a good will cause the current demand for the good to

answer

decrease, which is a shift to the left of the demand curve.

question

When economists say the quantity demanded of a product has increased, they mean the

answer

price of the product has fallen, and consequently, consumers are buying more of it.

question

What does Adam Smith's invisible hand principle stress?

answer

The tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

question

Which of the following is a major implication of the invisible hand concept?

answer

When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

question

Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?

answer

Central planning and political bargaining will replace market forces.

question

Which one of the following statements about pitfalls to avoid is correct?

answer

Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.

question

Suppose demand decreases and supply increases. Which of the following will happen?

answer

Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.

question

f there is both an increase in the supply of a good and a decrease in demand for a good, which of the following will definitely occur?

answer

The price of the good will decrease.

question

If Shawn can produce more donuts in one day than Sue can produce in one day, then

answer

Shawn has an absolute advantage in the production of donuts.

question

Economic analysis suggests that gains from specialization and exchange

answer

will be realized if individuals are allowed to pursue goals that are in their own self-interest.

question

Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises?

answer

The opportunity cost of producing hay increases.

question

Which of the following is the best description of the scientific method in economics?

answer

The unbiased development and testing of theories about how the world works.

question

In computing GDP, why are market prices used to value final goods and services?

answer

Market prices reflect the values of goods and services to the buyer.

question

U.S. exports are

answer

included in U.S. GDP because they are produced domestically

question

U.S. imports are

answer

not added to U.S. GDP because they are produced abroad

question

If Europe and Japan experience rapid growth in their incomes, other things constant, this will cause

answer

an increase in the exports of the United States.

question

If the nominal interest rate was 12 percent and the inflation rate was 10 percent in 1980, while the nominal interest rate was 7 percent and the inflation rate was 2 percent in 2009, then

answer

real rates were higher in 2009.

question

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?

answer

Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity.

question

If an unanticipated reduction in aggregate demand throws a market economy into a recession,

answer

lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential.

question

Steven puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 2 percent more goods.

answer

The nominal interest rate was 6 percent and the inflation rate was 4 percent.

question

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

answer

The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run.

question

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

answer

caused GDP to rise.

question

When the economy is operating at an output rate less than full-employment capacity,

answer

weak demand for investment will place downward pressure on real interest rates.

question

Which of the following will most likely occur in the United States as the result of an unexpected rapid growth in real income in Canada and Mexico?

answer

An increase in aggregate demand and output in the short run

question

If an unanticipated increase in aggregate demand results in an output beyond the economy's long-run capacity, long-run equilibrium will eventually be restored by

answer

higher resource prices and a decrease in SRAS.

question

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply?

answer

An increase in real GDP.

question

if Sam Jackson voluntarily quits one job, possesses marketable skills, and expects to find a new job in a few weeks, then Mr. Jackson is considered

answer

frictionally unemployed

question

Which of the following is true if the actual price level is lower than the expected price level reflected in long-term contracts?

answer

The actual rate of unemployment will exceed the natural rate of unemployment.

question

When prices in the goods and services market are below the level anticipated,

answer

output will temporarily fall short of the economy's long-run potential.

question

When an economy is in long run equilibrium,

answer

the actual and natural rates of unemployment will be equal.

question

Which of the following is true when an economy is operating at its full employment rate of output?

answer

The actual rate of unemployment will equal the natural rate

question

When full employment is present,

answer

the actual rate of unemployment will equal the natural rate.

question

During a recession, the actual rate of unemployment will be

answer

greater than the natural rate of unemployment

question

Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate

answer

increases, and the labor-force participation rate increases.

question

Sally is on a temporary layoff from her factory job. If Sally participates in the BLS survey, she will be classified as

answer

unemployed and in the labor force.

question

If this year the CPI is 110 and last year it was 100, then

answer

the price level as measured by the CPI has increased by 10 percent.

question

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

answer

your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.

question

Which of the following statements about real GDP per person is true?

answer

Real GDP per person provides more meaningful comparisons across time and countries than real GDP.

question

If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has

answer

appreciated relative to the peso. Other things the same, the appreciation would make you more likely to travel to Mexico.

question

If net exports are negative, then

answer

there will be net capital inflow, so American assets bought by foreigners are greater than foreign assets bought by Americans.

question

f the quantity supplied of euro were greater than the quantity demanded, which of the following would occur?

answer

The price of the euro would fall.

question

A large grain crop resulting from favorable weather conditions would shift which of the following curves?

answer

Only short-run aggregate supply.

question

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

answer

lower real interest rates and an increase in aggregate demand.

question

If the Fed unexpectedly decreases the money supply, real GDP

answer

decreases because the resulting increase in the interest rate leads to a decrease in investment.

question

When the Fed buys bonds and injects additional reserves into the banking system, this action will

answer

place downward pressure on short-term interest rates.

question

An unexpected increase in the supply of money will

answer

reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses

question

Which one of the following is a major difference between market and collective action through government?

answer

in the market sector, there is generally a one-to-one link between payment and consumption; this link is often absent in the government sector.

question

Which of the following is true regarding the methodology of public choice analysis?

answer

It develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives.

question

An analysis of countries experiencing rapid inflation indicates that inflation is generally

answer

caused by rapid growth in the money supply.

question

A shift to a more expansionary monetary policy will

answer

Stimulate output and employment, but only after a time lag that is generally long and variable.

question

Within the framework of the Keynesian model,

answer

changes in output rather than changes in prices direct the economy to equilibrium.

question

Within the Keynesian model, the multiplier effect tends to

answer

magnify small changes in spending into much larger changes in output and employment.

question

The expenditure multiplier indicates that

answer

changes in investment, government, or consumption spending can trigger much larger changes in output.

question

If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will

answer

reduce the size of the deposit expansion multiplier.

question

Why does a tax change affect aggregate demand?

answer

A tax change alters disposable income and consumption spending.

question

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

answer

A planned increase in the budget deficit.

question

According to the Keynesian view, the proper response to a severe recession would be

answer

an increase in government spending financed by borrowing.

question

Which of the following is the strongest evidence of a shift toward a more expansionary fiscal policy?

answer

An increase in government spending as a share of the economy and an expansion in the size of the budget deficit

question

When the Federal Reserve System wants to increase the money supply, what does it typically do?

answer

It purchases U.S. government securities.

question

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

answer

It would buy U.S. securities.

question

f the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

answer

through its policy of open market operations.

question

Which of the following indicates the primary mechanism by which the money supply expands?

answer

The Fed purchases additional bonds, which increases the reserves available to the banking system

question

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if

answer

the higher taxes cause workers to work less.

question

Which of the following attributes of fiscal policy will most likely be stressed by a supporter of supply-side economics?

answer

the impact of marginal tax rates on the supply and productivity of resources

question

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

answer

The crowding-out effect

question

In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates, which of the following is likely to occur?

answer

There will be a net inflow of capital, which will cause the dollar to appreciate and net exports to decline.

question

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

answer

budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion.

question

Which of the following is a primary action of modern banks?

answer

They hold only a fraction of their assets in the form of required reserves relative to their deposits.

question

If new regulations make it illegal to sell older model electrical appliances, then

answer

producers of new models that meet the regulations will see demand for their output rise.

question

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the

answer

acceptance of productive activities and rejection of unproductive activities

question

In which one of the following situations is the political process most likely to result in both the acceptance of efficient (productive) programs and the rejection of inefficient (counterproductive) political activities?

answer

The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives.

question

Which of the following is the most likely explanation for the imposition of a price floor in the market for corn?

answer

Sellers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.

question

If price falls, what happens to the demand for a product?

answer

It does not change.

question

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

answer

competitive markets direct the actions of self-interested individuals.

question

An increase in demand will cause

answer

an increase in quantity supplied.

question

Which of the following best expresses the law of demand?

answer

The inverse relationship between the price of a good and the quantity demanded.

question

What important role do profits and losses play in a market economy?

answer

They allocate scarce resources in a manner that maximizes the value created to society.

question

Which of the following would most likely cause the supply of wheat to increase?

answer

a technological advance that lowers the cost of producing wheat

question

If price rises, what happens to quantity supplied of a product?

answer

It increases.

question

An increase in supply will cause

answer

an increase in quantity demanded.

question

An increase in the price of a good would

answer

decrease the quantity demanded for the good.

question

An increase in the demand for tattoos will lead to a

answer

higher price and a larger quantity sold.

question

f price rises, what happens to the quantity demanded for a product?

answer

It decreases.

question

Other things constant, a decrease in consumer income will do which of the following?

answer

Decrease the demand for large-screen television sets

question

If nominal GDP rises from one year to the next, then

answer

either output, or the general level of prices, or both must be rising.

question

Which of the following transactions would be included in this year's GDP?

answer

d. Johnson rents a five-year-old house from Smith. Answers: a. Johnson purchases an antique at Smith's garage sale. b. Johnson purchases 100 shares of AT&T stock from Smith. c. Johnson purchases a five-year-old house from Smith. d. Johnson rents a five-year-old house from Smith.

question

When economists speak of changes in GDP measured in constant dollars, they mean that

answer

a price index has been used to adjust money GDP for the effects of inflation.

question

Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and services from foreign countries. This country would have

answer

$7.2 billion of exports and $4.8 billion of imports.

question

Which of the following about inventory changes and GDP is true?

answer

Inventory investment adds to GDP because it represents goods produced during the current period.

question

Which of the following expenditures are not included in the consumption component of GDP?

answer

d. purchase of a new home Answers: a. tax preparation service b. maid service c. a new videocassette recorder d. purchase of a new home e. a restaurant meal

question

Which one of the following transactions would be included in GDP?

answer

b. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident. Answers: a. Ms. Smith pays $5,000 to purchase 100 shares of Microsoft stock. b. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident. c. Ms. Kim pays $50 for a used picture frame at a neighborhood garage sale. d. Mr. Doe donates $500 to his town's junior college scholarship fund.

question

Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had

answer

$52.4 billion of exports and $44.1 billion of imports.

question

Which one of the following would count as investment in the national income accounts?

answer

d. a freight-hauling firm buying a new domestically produced truck Answers: a. buying an existing house b. buying 100 shares of Wal-Mart stock c. buying a U.S. government bond d. a freight-hauling firm buying a new domestically produced truck

question

If you wanted to compare the quantity of output of a country across time periods, which of the following would you use?

answer

real GDP

question

Which of the following is one of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the cost of living?

answer

It fails to account for the introduction of new goods.

question

Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house?

answer

The 2006 sale affected neither 2005 GDP nor 2006 GDP.

question

Anna, a U.S. citizen, works only in Germany. Where is the value she adds to production in Germany included?

answer

In German GDP, but it is not included in U.S. GDP.

question

A business produced $10 million of goods in 2007 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2007 gross domestic product?

answer

Yes, because these inventories are part of the output of the economy in 2007.

question

If inventory investment during a year was negative $6 billion, producers must have

answer

sold $6 billion more goods and services during the year than they produced.

question

Which of the following best describes the distinguishing characteristics of business cycles?

answer

Periods of growth in real output followed by periods of decline.

question

Which of the following would be officially classified as unemployed?

answer

A laid-off construction worker waiting to return to a previous job.

question

Sharon was being treated unfairly by her boss, so she stormed off the job and two days later found another position. For two days, Sharon experienced

answer

frictional unemployment

question

Matt loses his job and decides to sit on the beach rather than looking for work the next few months. Other things the same, what happens to the unemployment rate and labor-force participation rate?

answer

The unemployment rate increases, and the labor-force participation rate decreases.

question

What causes the natural rate of unemployment to exist?

answer

Normal dynamic changes given the institutional arrangements of the economy

question

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

answer

The sales of most businesses decline, and the unemployment rate rises.

question

When the rate of cyclical unemployment is zero, which of the following results?

answer

The economy is considered to be at full employment.

question

Full employment means which of the following is zero?

answer

cyclical unemployment

question

Suppose the official unemployment rate is 10 percent. Which of the following is a definite conclusion to draw?

answer

One of every ten people in the labor force is currently unemployed

question

A decrease in aggregate demand and the subsequent cutbacks in production lead to

answer

cyclical unemployment.

question

Which one of the following persons would be classified as unemployed by the Bureau of Labor Statistics?

answer

Joe, who is on layoff waiting for better weather so he can return to his construction job

question

When full employment is present in the United States, which of the following is true?

answer

Approximately 95 percent of the labor force will be employed.

question

What happens during periods when the inflation rate fluctuates widely?

answer

Uncertainty about changes in relative prices causes a decrease in economic efficiency.

question

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

answer

Real GDP rises, and unemployment falls.

question

If borrowers and lenders expect a higher rate of inflation, what happens to interest rates?

answer

Nominal interest rates will tend to rise.

question

Suppose people expect inflation to be 3 percent during the next several years. When the real interest rate is 5 percent, what will be the nominal (money) interest rate?

answer

8%

question

Which of the following will always be true when an economy is in long-run equilibrium?

answer

The output of the economy will correspond with the full-employment output.

question

If the dollar depreciates relative to the Peso, it can be said that

answer

the Peso appreciates relative to the dollar.

question

Other things constant, an increase in resource prices will do which of the following?

answer

Increase the cost of producing goods and services, which will lead to a higher price level.

question

f equilibrium is present in the foreign exchange market and a nation is experiencing a trade surplus,

answer

the nation must be experiencing a net capital outflow.

question

Which of the following best characterizes the circular flow of income?

answer

Businesses buy resources from households, and households use their income to buy goods and services from businesses.

question

Other things the same, when the interest rate rises

answer

people would want to lend more, making the quantity of loanable funds supplied increase.

question

Other things constant, a decrease in resource prices will lead to

answer

increased profits and an increase in short-run aggregate supply.

question

Which of the following will occur once decision makers fully adjust to an increase in prices?

answer

Competitive forces will restore the usual relationship between product prices and costs.

question

Which of the following would generate a dollar demand for the euro?

answer

American demand for European real estate.

question

A decrease in the dollar price of the English pound will make

answer

U.S. exports to England decrease

question

When the exchange rate is determined by market forces and an economy is experiencing a net inflow of capital, the economy will tend to

answer

run a trade deficit.

question

Which of the following is true in the aggregate demand and aggregate supply model?

answer

The upward-sloping short-run aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP.

question

Which of the following is true if there is a surplus of loanable funds?

answer

The quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.

question

Which of the following represents why private production tends to be more efficient then government production?

answer

all the above

question

As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to do which of the following?

answer

Spend more time rent seeking

question

Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs

answer

that reflect the political attractiveness of special-interest issues.

question

An analysis of market failure and government failure indicates

answer

both the market and the government may fail to meet conditions of economic efficiency; in each individual case, the choice of market or public-sector action requires careful evaluation.

question

The rational-ignorance effect refers to which of the following scenarios?

answer

The lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election.

question

Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to

answer

get them reelected

question

Special-interest legislation is characterized by which of the following?

answer

Concentrated benefits and widespread costs.

question

Which of the following explains why elected representatives will find borrowing to be an attractive method of financing current government programs?

answer

the short sightedness effect

question

Which of the following is a distinguishing characteristic of a user charge?

answer

Persons pay roughly in proportion to the extent that they use the good or service.

question

When is crony capitalism most likely to be present?

answer

When businesses either implicitly or explicitly provide political decision-makers with contributions and other forms of political support in "exchange" for government favors that will improve their profitability.

question

For activities in which the benefits are concentrated and the costs widespread, governments are likely to undertake

answer

too much of these activities relative to what would be efficient

question

Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient?

answer

All of the above are correct.

question

What is logrolling?

answer

Vote trading among legislators.

question

According to the shortsightedness effect, politicians tend to favor projects with which of the following characteristics?

answer

Short-run benefits and long-run costs.

question

Which of the following is accurate regarding government expenditures in the United States?

answer

The federal government spends considerably more than state and local governments combined.

question

The larger the marginal propensity to consume,

answer

the larger the multiplier

question

Why do long lags make discretionary policy less effective?

answer

By the time the impact of a policy is felt, the problem may have been corrected by market forces.

question

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

answer

powerful trade unions and large corporations made wages highly inflexible.

question

The multiplier effect refers to the fact that a change in spending (aggregate demand) will

answer

cause nominal output to rise by some multiple of the initial increase in spending.

question

Why is the multiplier principle important?

answer

It shows why small shifts in investment have a powerful influence on national income

question

Which of the following provides the best information about the direction of the government's fiscal policy?

answer

changes in the size of the federal government's budget deficit or surplus

question

Within the framework of the Keynesian model, which of the following will occur if spending is abnormally low?

answer

Equilibrium output will be less than the full-employment rate of output.

question

According to the Keynesian view, which of the following would most likely stimulate real output if an economy were in a recession?

answer

a decrease in tax rates

question

If the government owes $10.0 trillion and then borrows $700 billion more this year, this leads to

answer

a debt of $10.7 trillion and a deficit of $700 billion.

question

Which of the following best describes the economic conditions of the 1930s?

answer

Depressed economic conditions and prolonged high rates of unemployment.

question

Keynesian economists believed that the prolonged unemployment of the 1930s was the result of

answer

insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.

question

Discretionary fiscal policy involves which of the following?

answer

An intentional change in taxation or government spending.

question

Changes in government spending and/or taxes as the result of legislation, is called

answer

discretionary fiscal policy.

question

As the marginal propensity to consume (MPC) increases, what happens to the spending multiplier?

answer

It increases.

question

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

answer

countercyclical fiscal policy.

question

Which of the following best describes the crowding-out effect?

answer

An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending.

question

Which of the following is most likely true when household debt as a share of income is abnormally high?

answer

The growth of consumption is likely to remain sluggish even as the economy begins to recover

question

According to the crowding-out effect, expansionary fiscal policy will lead to

answer

higher interest rates, an appreciated dollar, and reduced net exports.

question

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

answer

consumers

question

Measured as a share of GDP, what happened to the net federal debt between 1990 and 2011?

answer

It fell during most of the 1990s, but rose sharply during 2001-2011.

question

Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy?

answer

Budget deficits are a highly effective tool with which to combat a severe recession.

question

Both Keynesians and non-Keynesians now recognize

answer

the difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner.

question

Which of the following does the crowding-out effect stress?

answer

Additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise.

question

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

answer

It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability.

question

Since the mid-1980s, what has happened to the debt-to-income ratio of American households?

answer

It has rapidly increased.

question

If heavy federal borrowing pushes up real interest rates in the United States, which of the following will most likely result?

answer

an inflow of capital and an appreciation in the foreign exchange value of the dollar

question

Which of the following is true about fiscal policy?

answer

Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve.

question

Which is more likely to stimulate aggregate demand in a timely manner?

answer

a tax cut, because disbursement can take place quickly while spending increases are generally spread out over several years

question

Critics of the Keynesian view argue that increases in government spending financed by borrowing will hamper the recovery from a recession and slow long term growth because

answer

all of the above are true

question

What is mostly likely to happen if decreased government borrowing drives down real interest rates in the United States?

answer

The dollar will depreciate leading to an increase in net exports.

question

What is the effect when a customer deposits $100 into a checking account?

answer

Both the bank's liabilities and its assets will increase.

question

Which of the following is true regarding the foreign holdings of U.S. dollars?

answer

They indicate that foreigners have confidence in the monetary policy and economy of the United States.

question

The Fed acquired the authority to do which of the following during the economic crisis of 2008?

answer

Pay interest to commercial banks on their reserves.

question

An individual bank can lend out at most its

answer

excess reserves

question

When the actual reserves held by a bank exceed the legal requirement, the bank

answer

has excess reserves, which can be used to extend additional loans.

question

When the Fed lowers the discount rate, it makes it

answer

cheaper for banks to obtain additional reserves by borrowing from the Fed.

question

Compared to a barter economy, using money increases efficiency by reducing

answer

transaction costs

question

Which of the following is the primary tool the Fed uses to control the supply of money?

answer

open market operations

question

In order to increase the money supply, the banking system must have which of the following?

answer

excess reserves

question

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

answer

There is no change in the supply of money; your bank's excess reserves are reduced by $800.

question

What is the primary benefit of a monetary system of exchange compared to a barter system?

answer

Better efficiency in arranging transactions.

question

If you have a checking account at a local bank, your bank account there is

answer

a liability of the bank and an asset to you.

question

What is meant by the expression, "There is too much money chasing too few goods"?

answer

An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices.

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If the prices of goods and services fall, what happens to the value of money (its purchasing power)?

answer

it increases

question

Banks are considered a safer place to deposit money now than they were prior to 1933 because

answer

the creation of the FDIC reduced the likelihood of bank runs.

question

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

answer

a decrease in the real interest rate

question

An unanticipated shift to a more restrictive monetary policy by the Fed will result in which of the following?

answer

An increase in interest rates and, thereby, reduced investment, current consumption, and aggregate demand.

question

if expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

answer

Net foreign investment will decline, causing the dollar to depreciate and net exports to increase.

question

Which of the following will be the most likely impact of an unanticipated increase in the money supply?

answer

A decrease in the real interest rate, which in turn stimulates investment and GDP.

question

In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

answer

an increase in employment

question

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated decrease in the money supply will be

answer

higher real interest rates and a reduction in aggregate demand.

question

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

answer

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

question

Which of the following will increase interest rates in the short run?

answer

the sale of bonds by the Federal Reserve in the open market

question

Which of the following contributed to the financial crisis of 2008?

answer

all of the above

question

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

answer

fall by 50 percent.

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Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

answer

The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable.

question

When the Fed decreases the money supply, what will happen to nominal interest rates?

answer

they will rise

question

An unanticipated increase in the money supply will lead to

answer

a decline in interest rates, an increase in investment, and an increase in aggregate demand.

question

If there is a "long and variable time lag" between when a change in monetary policy is instituted and when it impacts aggregate demand and output, this will

answer

make it more difficult for the Fed to properly time changes in monetary policy.

question

Which of the following is true?

answer

Growth of output is necessary for the growth of income.

question

Which of the following will discourage investment?

answer

monetary instability

question

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

answer

a higher rate of investment

question

Why do political instability and insecure property rights retard economic growth?

answer

all the above

question

Which of the following would be most likely to cause the per capita income of less-developed countries to rise?

answer

investment expenditures that enhance the human capital of labor force participants

question

In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product?

answer

the profit or loss of the business

question

How does an open capital market affect a nation's economic growth?

answer

all the above

question

Economic growth will have which of the following effects?

answer

Expand the production possibilities of an economy.

question

The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation can grow rapidly without which of the following?

answer

Abundant domestic natural resources.

question

Which of the following statements concerning economic growth is true?

answer

Economic growth is primarily the result of gains from trade, discovery of better ways of doing things, and capital investment.

question

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization?

answer

imposition of tariffs and other barriers limiting international trade

question

Which of the following statements about economic growth is true?

answer

Countries with low marginal tax rates have generally had higher rates of economic growth than those with high tax rates.

question

Monetary and price instability will

answer

generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.

question

If a nation is going to achieve and sustain a high rate of economic growth, it must

answer

have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

question

Which of the following is important if a country is going to achieve and sustain high rates of economic growth?

answer

all the above

question

According to data on GDP growth between 1980 and 2009, which of the following statements is true?

answer

Many poor nations grew more rapidly than wealthy nations, while others continued to stagnate.

question

Democracy tends to best promote freedom when there is

answer

constitutional protection of private property rights.

question

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country do which of the following?

answer

all the above

question

According to the Economic Freedom of the World measure, the United States was

answer

the third freest economy in the world, behind only Hong Kong and Singapore during 1980-2000.

question

Which of the following provides the fuel for growth and achievement of high income levels?

answer

all of the above

question

Which of the following is true for the developing countries that moved most rapidly toward economic freedom during 1980-2005 period?

answer

They experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free.

question

In order to achieve a high economic freedom rating, a country must

answer

all of the above

question

According to the Economic Freedom of the World measure, between 2000 and 2009 what happened to the economic freedom of the United States?

answer

It declined and its rank fell from third to tenth during this period.

question

The GDP figures fail to count labor services and other household production. Once this omission is taken into account,

answer

the income differences between the high and low income countries are still huge

question

One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2009?

answer

Per capita GDP increased more rapidly in China and India than in the high income industrial countries.

question

Which of the following is true of modern technology?

answer

all of the above

question

Compared to those in low-income countries, the residents of countries with high per person incomes nearly always

answer

all the above- live longer, lower mortality rates, lower birth rates

question

Countries with more economic freedom during 1980-2009 tended to do which of the following

answer

Achieve both more rapid growth and higher income levels than those that were less free.

question

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates.

answer

higher; more rapid

question

Other things constant, countries that invest more will grow

answer

more rapidly

question

Which of the following arguments in support of trade restrictions limiting U.S. dependence on foreign suppliers of petroleum and aircraft is most valid when applied to the United States?

answer

the national defense argument

question

Which of the following is a basic problem with the infant-industry argument?

answer

Political pressure will likely prevent the withdrawal of the tariff when the industry matures

question

The theory of comparative advantage suggests that nations should produce a good if they

answer

have the lowest opportunity cost.

question

International trade does all the following except

answer

reduce world output.

question

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made?

answer

The country will be an importer of the good.

question

What would opening trade between two nations do?

answer

Trade would leave the production possibilities unchanged and increase their consumption possibilities.

question

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

answer

The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise.

question

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, which of the following conclusions can be made?

answer

The country will be an exporter of the good.

question

Compared to the no-trade situation, when a country imports a good, which of the following will occur?

answer

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

question

Who would most likely be helped by an increase in the tariff on foreign-produced automobiles?

answer

The domestic producers of automobiles.

question

Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average,

answer

low rates of economic growth.

question

Why do opportunity costs primarily differ among nations?

answer

Nations have different endowments of land, labor skills, capital, and technology.

question

Economically speaking, tariffs are

answer

obstacles that limit voluntary exchange.

question

The primary source of purchasing power used to buy imported goods is

answer

the exports of a nation.

question

Which of the following about trade is true?

answer

Specialization and trade leads to mutual gains for countries.

question

Which of the following about trade is true?

answer

Specialization and trade leads to mutual gains for countries.

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