Final Study Deck

Question 1

The ________ shows the relationship between the price level and quantity of real GDP demanded.
A) aggregate expenditure line B) 45-degree line C) aggregate demand curve D) consumer price index

Answer 1

aggregate demand curve

Question 2

Because of the slope of the aggregate demand curve, we can say that
A) a decrease in the price level leads to a higher level of real GDP demanded.
B) an increase in the price level leads to a higher level of real GDP demanded.
C) an increase in the price level leads to no change in the level of real GDP demanded.
D) a decrease in the price level leads to a lower level of real GDP demanded.

Answer 2

a decrease in the price level leads to a higher level of real GDP demanded

Question 3

An increase in the price level will
) shift the aggregate demand curve to the right.
B) shift the aggregate demand curve to the left.
C) move the economy up along a stationary aggregate demand curve.
D) move the economy down along a stationary aggregate demand curve.

Answer 3

move the economy up along a stationary aggregate demand curve

Question 4

Deflation will
A) increase the quantity of real GDP demanded. B) increase aggregate demand.
C) decrease aggregate demand. D) decrease the quantity of real GDP demanded.

Answer 4

increase the quantity of real GDP demanded.

Question 5

Which of the following best describes the “wealth effect”?
A) When the price level falls, the nominal value of household wealth falls.
B) When the price level falls, the real value of household wealth falls.
C) When the price level falls, the nominal value of household wealth rises.
D) When the price level falls, the real value of household wealth rises

Answer 5

When the price level falls, the real value of household wealth rises

Question 6

The “interest rate effect” can be described as an increase in the price level that raises the interest rate
and chokes off
A) investment and consumption spending.
B) net exports.
C) government spending.
D) government spending and unplanned investment

Answer 6

investment and consumption spending.

Question 7

When the price level in the United States falls relative to the price level of other countries, ________
will fall, ________ will rise, and ________ will rise
A) net exports; imports; exports B) net exports; exports; imports
C) imports; exports; net exports D) exports; imports; net exports

Answer 7

imports; exports; net exports

Question 8

The international trade effect states that
A) an increase in the price level will lower net exports.
B) an increase in the price level will raise net exports.
C) an increase in the price level will raise exports.
D) an increase in the price level will lower imports.

Answer 8

an increase in the price level will lower net exports

Question 9

Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish
kronor to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from
the United States to Sweden and ________ U.S. aggregate demand.
) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Answer 9

decrease; decrease

Question 10

The long-run aggregate supply curve shows the relationship between the ________ and ________.
A) real interest rate; quantity of real GDP supplied
B) nominal interest rate; quantity of real GDP supplied
C) price level; quantity of real GDP supplied
D) inflation rate; quantity of real GDP demanded

Answer 10

nominal interest rate; quantity of real GDP supplied

Question 11

Changes in the price level
A) increase the level of aggregate supply in the long run only at very high levels of output.
B) increase the level of aggregate supply in the long run.
C) do not affect the level of aggregate supply in the long run.
D) decrease the level of aggregate supply in the long run

Answer 11

do not affect the level of aggregate supply in the long run.

Question 12

An increase in the price level will
A) shift the short-run aggregate supply curve to the right.
B) move the economy down along a stationary short-run aggregate supply curve.
C) shift the short-run aggregate supply curve to the left.
D) move the economy up along a stationary short-run aggregate supply curve

Answer 12

move the economy up along a stationary short-run aggregate supply curve.

Question 13

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which
subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining
capacity was restored, these prices came back down. The restoration of refining capacity should
A) move the economy up along a stationary short-run aggregate supply curve.
B) shift the short-run aggregate supply curve to the left.
C) shift the short-run aggregate supply curve to the right.
D) move the economy down along a stationary short-run aggregate supply curve.

Answer 13

shift the short-run aggregate supply curve to the right.

Question 14

Which of the following would cause the short-run aggregate supply curve to shift to the right?
A) an increase in the price level B) a decrease in inflation expectations
C) an increase in interest rates D) a technological advance

Answer 14

a technological advance

Question 15

Suppose there has been an increase in investment. As a result, real GDP will ________ in the short
run, and ________ in the long run
A) increase; decrease to its initial value B) decrease; increase to its initial level
C) decrease; decrease further D) increase; increase further

Answer 15

increase; decrease to its initial value

Question 16

Silver is an example of a
A) fiat money. B) commodity money.
C) representative money. D) barter money

Answer 16

commodity money

Question 17

The statement, “My iPhone is worth $300” represents money’s function as
A) a store of value. B) a standard of deferred payment.
C) a medium of exchange. D) a unit of account.

Answer 17

a unit of account.

Question 18

Which of the following functions of money would be violated if inflation were high?
A) medium of exchange B) unit of account
C) certificate of goldD) store of value

Answer 18

store of value

Question 19

Dollar bills in the modern economy serve as money because
A) they are backed by the gold stored in Fort Knox.
B) they have value as a commodity independent of their use as money.
C) they can be redeemed for gold by the central bank.
D) people have confidence that others will accept them as money.

Answer 19

people have confidence that others will accept them as money

Question 20

The Federal Reserve’s narrowest definition of the money supply is
A) M0. B) M1. C) M2.D) M3

Answer 20

M1

Question 21

Which of the following is not counted in M1?
A) traveler’s check balances
B) checking account balances
C) currency in circulation
D) coins in circulation
E) credit card balances

Answer 21

credit card balances

Question 22

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings
account, then M1 will ________ and M2 will ________.
A) increase; increase
B) decrease; not change
C) not change; increase
D) increase; decrease
E) decrease; increase

Answer 22

decrease; not change

Question 23

If people speculate that a run on one bank will cause a run on all banks in the
financial system, and this speculation proves accurate, then the financial system would
experience what is known as a
A) bank panic. B) securitization meltdown.
C) commodity crisis. D) institutional death spiral.

Answer 23

bank panic

Question 24

to decrease the money supply, the Federal Reserve could
A) raise income taxes.
B) raise transfer payments.
C) conduct an open market sale of Treasury securities.
D) lower the discount rate.
E) lower the required reserve ratio.

Answer 24

conduct an open market sale of Treasury securities.

Question 25

The seven members of the Board of Governors of the Federal Reserve are
appointed by
A) Congress.
B) the Treasury Department.
C) the President.
D) leaders in the banking industry.
E) the Governors of the States.

Answer 25

President.

Question 26

A decrease in the discount rate ________ bank reserves and ________ the money
supply if banks respond appropriately to the change in the rate.
A) decreases; increases B) decreases; decreases
C) increases; increases D) increases; decreases

Answer 26

increases; increases

Question 27

Using the quantity equation, if the velocity of money grows at 5 percent, the
money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation
rate will be
A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent

Answer 27

11 percent

Question 28

According to the quantity theory of money, if the money supply grows at 20
percent and real GDP grows at 5 percent, then the inflation rate will be
A) 15 percent. B) 20 percent. C) 25 percent. D) 100 percent.

Answer 28

15 percent

Question 29

Hyperinflation is caused by
A) a high rate of growth in the money supply.
B) the money supply growing more slowly than GDP.
C) Real GDP growing more rapidly than the money supply.
D) a constant increase in the money supply.

Answer 29

a high rate of growth in the money supply

Question 30

The velocity of money is defined as
A) the total number of times each dollar is used to purchase goods and services.
B) P × Y.
C) .
D) the average number of times each dollar is used to purchase goods and services.

Answer 30

the average number of times each dollar is used to purchase goods and services.