Macro

Question 1

If expected inflation is 2%, the nominal interest rate is 7% and the economy is growing at a rate of 3%, the real interest rate is equal to a.6% b.12% c.4% d.5% e.9%

Answer 1

d.5% 7-2=5

Question 2

The GDP deflator is a.(Real GDP x 100)/(Nominal GDP). b.(Nominal GDP x 100)/(Real GDP). c.(Nominal GDP)/(Real GDP). d.(Real GDP)/(Nominal GDP). e.none of the above.

Answer 2

b.(Nominal GDP x 100)/(Real GDP).

Question 3

According to the loanable funds framework, if businesses see new opportunities to expand capacity by building new factories, the likely effect will be that: a.Interest rates decrease due to an increase in borrowing. b.Interest rates decrease due to a greater amount of saving. c.There will be no change in interest rates. d.The total quantity of borrowing and lending will fall. e.None of the above.

Answer 3

e.None of the above.

Question 4

A full-time student who did not have a job and was not looking for work would be categorized as a.employed b.unemployed c.not in the labor force d.marginally unemployed e.partially employed

Answer 4

c.not in the labor force

Question 5

Which of the following statements is consistent with the theory of liquidity preference? a.When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates fall. b.When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates rise. c.When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates don’t change in the short run, but we will get substantial inflation. d.When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates don’t change in the short run, but the cost of living is likely to fall. e.None of the above statements are correct.

Answer 5

a.When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates fall.

Question 6

An open market purchase is where the Fed a.purchases government bonds from the public, thereby decreasing the money supply. b.purchases government bonds from the public, thereby increasing the money supply. c.increases the money supply by selling government bonds to the public. d.decreases the money supply by selling government bonds to the public. e.none of the above.

Answer 6

b.purchases government bonds from the public, thereby increasing the money supply.

Question 7

All of the following would cause a rightward shift in the short-run aggregate-supply curve except a. a change in labor laws that facilitates labor mobility and thereby raises the productivity of workers. b. the invention of a new and more powerful computer chip that increases productivity throughout the economy. c. a war that reduces the economy’s physical capital stock. d. new educational advances that substantially increase the level of human capital. e. an increase in immigration.

Answer 7

c. a war that reduces the economy’s physical capital stock.

Question 8

Which of the following is not an example of monetary policy? a.Purchasing of government bonds in an open market operation. b.A change in required reserve regulations. c.A change in the discount rate. d.An increase in the earned income tax credit. e.Selling of government bonds in an open market operation.

Answer 8

d.An increase in the earned income tax credit.

Question 9

If nominal wages adjust slowly to changing economic conditions, then a decrease in the price level will cause the real wage rate to rise and employment and real output to fall. This description of the impact of a decrease in the price level on real output is used to explain: a.a shift in the aggregate-demand curve. b.the negative slope of the aggregate demand curve. c.a shift in the short-run aggregate-supply curve. d.the vertical shape of the long-run supply curve. e.the positive slope of the short-run aggregate-supply curve.

Answer 9

e.the positive slope of the short-run aggregate-supply curve.

Question 10

According to the theory of “money neutrality” which of the following statements is likely to be true? a. When the money supply is increased, real wage rates will rise. b. When the money supply is increased, real interest rates will fall. c. When the money supply is increased, real GDP will increase. d. When the money supply is increased, real wage rates will fall. e. When the money supply is increased, nominal wage rates will rise.

Answer 10

e. When the money supply is increased, nominal wage rates will rise.

Question 11

If the reserve ratio is 25 percent, the money multiplier is a. 2 b. 4 c. 5 d. 8 e. 25

Answer 11

b. 4 100/25=4

Question 12

Private property rights a. make it more likely that a society will develop rapidly. b. allow an individual to decide what to do with the product of his/her labor. c. force a person not to help support family members in need. d. allow the owners of a firm to decide what to do with any profits. e. all but “c”.

Answer 12

e. all but “c”.

Question 13

A country will grow faster if a. investment in human capital increases. b. saving decreases. c. the government raises taxes on savings. d. investment in physical capital decreases. e. all of the above.

Answer 13

a. investment in human capital increases.

Question 14

The aggregate supply-aggregate demand model suggests that the government can stabilize an economy that experiences a sudden and unexpected decline in consumer confidence and aggregate demand by: a. increasing the money supply. b. decreasing government spending to balance the budget. c. raising taxes. d. all of the above. e. none of the above.

Answer 14

a. increasing the money supply.

Question 15

Suppose that aggregate consumption is $1,000,000, aggregate investment is $200,000, government spending is $300,000, the value of exports is $100,000, and the value of imports is $200,000. What is the value of Gross Domestic Product (GDP)? a.$1,800,000 b.$1,500,000 c.$1,400,000 d.$1,700,000 e.$1,600,000

Answer 15

c.$1,400,000 aggregate consumption + government spending+exports 1,000,000+300,000+100,000= 1,400,000

Question 16

If the dollar value of a country’s exports is greater than the value of its imports, a. net foreign investment is generally positive. b. net foreign investment is unaffected. c. net foreign investment is generally negative. d. investment flows into the country. e. both a and d.

Answer 16

a. net foreign investment is generally positive.

Question 17

Which of the following is an example of active fiscal policy? a. Government expenditures rise during a recession because unemployment insurance benefits increase. b. The government runs a budget deficit during a recession because income tax collections fall. c. Congress passes a tax cut after the beginning of a recession with the aim of stimulating the economy. d. all of the above e. none of the above

Answer 17

c. Congress passes a tax cut after the beginning of a recession with the aim of stimulating the economy.

Question 18

Negative net exports means that a. the country sells more goods abroad than it buys from other countries. b. the country buys more goods from other countries than it sells to other countries. c. the country has a closed economy. d. the country’s tariffs are too low. e. both c and d

Answer 18

b. the country buys more goods from other countries than it sells to other countries.

Question 19

Which of the following is not an example of an automatic stabilizer? a. the increase in unemployment insurance payments during a recession b. the increase in welfare payments during a recession c. the reduction in income tax revenues during a recession d. the passage of a stimulus package to respond to a recession e. All of these are automatic stabilizers.

Answer 19

d. the passage of a stimulus package to respond to a recession

Question 20

To decrease the money supply, the Fed would a. buy government bonds. b. increase the discount rate. c. decrease the reserve requirement. d. any of the above e. none of the above

Answer 20

b. increase the discount rate.

Question 21

The aggregate supply-aggregate demand model predicts that an unexpected increase in government spending will have what short-run effects? a. A decrease in the price level and an increase in real output. b. A decrease in the price level and no effect on real output. c. An increase in the price level and a decrease in real output. d. A decrease in both the price level and real output. e. An increase in both the price level and real output.

Answer 21

e. An increase in both the price level and real output.

Question 22

Which of the following would be included in Gross National Product (GNP) but not in Gross Domestic Product (GDP) of the United States? a. the earnings of an American-owned factory in Germany b. the income of a Texan employed in Oklahoma c. the earnings of a Japanese-owned factory in the U.S. d. the income of American government employees working in Washington, D.C. e. the income of employees of foreigners working in foreign embassies in the U.S.

Answer 22

a. the earnings of an American-owned factory in Germany

Question 23

According to the following information, what is the unemployment rate? (Round to the nearest tenth of a percent.) Number of Employed: 10,000 Number of Unemployed: 500 Not in the Labor Force: 3,000 a.5.0% b.4.8% c.3.7% d.30.0% e.none of the above

Answer 23

b.4.8% 10,000+500= 10,500 500/10,500= 0.048

Question 24

In economics, “National Saving” is calculated by a. Subtracting private consumption and investment from total income. b. Subtracting credit card debt from the total value of stock market investments. c. Combining the total value of savings accounts with stock market investments. d. Subtracting private and government consumption from total income. e. None of the above.

Answer 24

d. Subtracting private and government consumption from total income.

Question 25

Which of the following is NOT one of the components of aggregate demand? a. Consumption spending. b. Investment spending. c. Government purchases of goods and services. d. Money supply. e. Net exports.

Answer 25

d. Money supply.

Question 26

In the long-run, higher saving leads to a. permanently faster growth. b. permanently slower growth. c. temporarily faster growth. d. temporarily slower growth. e. none of the above.

Answer 26

c. temporarily faster growth.

Question 27

Which of the following is not included in a country’s Gross Domestic Product (GDP)? a. the value of final goods sold b. the value of final services sold c. the value of investment d. the value of government expenditures e. the value of household production in the economy

Answer 27

e. the value of household production in the economy

Question 28

Which of the following statements are correct? a. Economists using the classical dichotomy distinguish between variables measured in monetary units from those measured in physical units. b. Real variables are variables measured in monetary units. c. Nominal variables are variables measured in physical units. d. a is false, but b and c are both correct. e. a, b, and c are all correct.

Answer 28

a. Economists using the classical dichotomy distinguish between variables measured in monetary units from those measured in physical units.

Question 29

The quantity equation relates a measure of the money supply (M), to the velocity of money (V), the GDP deflator (P) and real GDP (Y). Which of the following expression accurately describes the quantity equation? a. MY = PV b. MP = VY c. MV = PY d. M/P = V/Y e. None of the above describes the quantity equation.

Answer 29

c. MV = PY

Question 30

An increase in the minimum wage will likely: a. increase structural unemployment. b. decrease structural unemployment. c. increase frictional unemployment. d. decrease frictional unemployment. e. increase cyclical unemployment.

Answer 30

a. increase structural unemployment.

Question 31

According to the loanable funds framework, if businesses reduce their willingness to spend money on new capital equipment, a. inflation will increase b. interest rates will increase. c. interest rates will decrease. d. interest rates will not change. e. none of the above are true.

Answer 31

c. interest rates will decrease.

Question 32

Governments can increase the likelihood of economic development by a. instituting policies to see that everyone shares equally. b. supporting smooth transitions from one set of office-holders to another. c. encouraging banks to lend to politically favored borrowers at below-market interest rates. d. adopting policies that specifically benefit those in office. e. heavily taxing profits from new inventions.

Answer 32

b. supporting smooth transitions from one set of office-holders to another.

Question 33

Country tends to grow faster when a. Have more greater college graduates b. Less trade with the world c. Government restricts direction d. Savings and investments decreases e. Stock on physical capital

Answer 33

a. Have more greater college graduates

Question 34

If you buy a drink, private property rights give you the ability to a. allows someone else to drink it b. drink it when someone is thirty c. do whatever you want with it d. share it e. all of the above

Answer 34

e. all of the above

Question 35

If the government created a new tax credit to encourage businesses to build more factories

Answer 35

demand of loanable funds would increase

Question 36

In economics, “real interest rate” can best be described as

Answer 36

the nominal interest rate adjusted for expected inflation

Question 37

How big is the labor force? Employed 800, unemployed 200, not in labor force 50

Answer 37

1000 800+200

Question 38

Which of the following is not a important determinant of the quantity of money demand a. availability of a ATM machine b. price level c. interest rate d. value of money e. all of the above

Answer 38

d. value of money

Question 39

Which of the following is the incorrect statement a. during a period of inflation, prices are always rising b. when inflation is decreasing, prices are always falling c. if the inflation is constant, prices are neither rising or falling

Answer 39

a. during a period of inflation, prices are always rising

Question 40

According to the multiplier effect, a dollar increases in government spending will lead to a. A multiple dollar increase in the money supply b. ?? c. ?? d. A multiple dollar increase in the aggregate demand e. None of the above

Answer 40

d. A multiple dollar increase in the aggregate demand ????

Question 41

Which of the following will shift the aggregate demand to the right a. increase in government purchases b. reduction in consumer spending c. selling government securities by the federal reserve bank d. downsizing of corporate investment spending e. all of the above

Answer 41

a. increase in government purchases

Question 42

If you take investment by US residents in other countries and you subtract investment by foreign resident in the US, you will find

Answer 42

net foreign investment

Question 43

Cyclical unemployment is best defined as a. deviation of unemployment from the natural rate b. unemployment due to individuals searching for new jobs c. chronic unemployment due to wages not balancing with goods and services d. unemployment associated with inefficiency in capital markets e. unemployment resulting from people who don’t wish to work.

Answer 43

d. unemployment associated with inefficiency in capital markets

Question 44

Joe’s income this year is 55,000. The consumer price CPI is 110. What Joe’s income in term of base year dollars rounded to the nearest dollar? A. 60,500 B. 53,000 C. 49,800 D. 50,000 E. none

Answer 44

D. 50,000 (55,000 / 110) * 100 = 50,000

Question 45

Government can increase Long-Run economy growth by encouraging A. Conservation of resources B. Consumption C. Spending D. Saving and Investing E. None

Answer 45

D. Saving and Investing

Question 46

Enforceable private property risks A. Make economic development more likely. B. Make economic development less likely. C. Guarantee that economic development will occur. D. Ultimately have title effect on economy E. Guarantee that economic development will not occur.

Answer 46

A. Make economic development more likely.

Question 47

If real interest rates are too low A. There will be excess demand in the loan able fund market (if rates are too law). B. Nominal interest rates will have to rise C. There will be excess supply in loan able funds market D. Inflation must be increase E. The GDP deflator has not been append yet

Answer 47

C. There will be excess supply in loan able funds market

Question 48

The substitution bias means that A. Consumer substitute towards good that have become relatively more expensive. B. Consumers substitute towards goods that have become relatively less expense. C. The CPI understates the increase in the cost of living each years. D. The CPI compensates for equal changes and accurately reflect the cost of living. E. None of the above.

Answer 48

B. Consumers substitute towards goods that have become relatively less expense.

Question 49

Many countries in the Far East, such as South Korea and Tawin have experience decades of repaid economic growth following by lower economic growth recent year. The phenomenon is known as A. The catch-up-effect B. The exploitation effect C. The Asian effect D. The supper growth effect E. The over investment effect.

Answer 49

A. The catch-up-effect

Question 50

Real interest rate Formula

Answer 50

nominal Interest rate-inflation rate

Question 51

If you take nation’s total income and subtract out private consumption, government consumption you will find. A. GDP B. National Saving C. Net national product D. Net exports E. National consumption surplus.

Answer 51

B. National Saving

Question 52

Nominal interest rate formula

Answer 52

real interest rate+inflation rate

Question 53

Frictional unemployment best defined as A. Deviation of unemployment from its natural rate B. Unemployment of people who do not want to work. C. Chronic unemployment due to wages not balancing supply and demand D. Unemployment due to individuals search for new job.

Answer 53

D. Unemployment due to individuals search for new job.

Question 54

The decrease in Money Supply, the Fed would? A. Buy government’s bonds B. Increase the discount rate C. Decrease the reserve requirement D. All of the above E. None of the above

Answer 54

B. Increase the discount rate

Question 55

Suppose that the country of France has a 22% nominal interest rate and an expected inflation rate of 10%. Which of the following is the best estimate of the Real interest Rate in the country? A. 2.2% B. 22% C. 12% D. 10% E. Not enough info.

Answer 55

C. 12% 22-10=12

Question 56

With sticky nominal wages an unexpected decline in aggregate demand can be expected to cause.

Answer 56

Both price and Real decrease in the Short-Run

Question 57

The main problem with active fiscal policy is that?***** A. Changes in government’s spending have no effect on Aggregate Demand in short-run. B. The multiplier effect cancels out any positive effect of fiscal policy C. Automatic statistic countract the effect of fiscal policy. D. It happens without any involvement by congress E. It is difficult to time fiscal changes correctly.

Answer 57

E. It is difficult to time fiscal changes correctly.

Question 58

Relationship between the quantity of inputs used in production and the quantity produced from those inputs is called. A. Productivity Equation B. Production function C. an input – output function. D. A GDP deflator E. None

Answer 58

B. Production function

Question 59

Which of the following is an example of frictional unemployment? A. Recent graduate looking for a job. B. A mother is searching for a job and the kid has gone to college C. New Yorker moved to California. D. Computer program who turned down a job offer expect better job. E. All

Answer 59

E. All

Question 60

Relationship between saving investment and net foreign investments ******* A. S + I B. I – S C. S – I D. S/I E. S – I

Answer 60

C. S – I

Question 61

What is an automatic stabilizer? ************** A. Tool of monitory policy that enters under control of the Fed Chairman. B. Tools of Fiscal that requires specific legislation to be passed by congress. C. Tools of fiscal policy that responds to change in the economy without any action by politician. D. Tools of monitory policy that is not control by Fed E. Tools of fiscal policy that is immune to crowding out

Answer 61

C. Tools of fiscal policy that responds to change in the economy without any action by politician.

Question 62

Problems in measuring the cost of living include ******** A. Substitution bias B. The introd of new goods C. Unmeasured quality changes D. All

Answer 62

D. All

Question 63

The required Reserve ration is 25% an additional 5,000 of reserves can increase the money supply by? A. 1,250 B. 125,000 C. 25,000 D. 20,000 E. 5,000

Answer 63

D. 20,000 5000/.25=20000

Question 64

Which shifts the aggregate demand to the right? A. Increase in government purchases B. Reduction in consumer spending. C. The selling of government securities by Fed Reserve Bank D. Downsizing of corporate investment spending E. All of the above

Answer 64

A. Increase in government purchases

Question 65

Liquidity performance an increase in the rate of growth of the money supply cause? A. Interest rates will fall B. Interest rates will rise C. Nominal wages will fall D. Nominal GDP will stay the same E. Real GDP will fall

Answer 65

A. Interest rates will fall

Question 66

GDP is 5 trillion dollars, the price level is $2, money supply is 2 trillion dollars. What is the value of the velocity of money according to the quantity equation? A. 5 B. 2 C. 10 D. 8 E. Can’t be determined.

Answer 66

A. 5 MV = PY V = (PY / M) V = (5 * 2) / 2 V = 10 / 2 V = 5

Question 67

Suppose that the price level is 5, money supply is 10 trillion dollars, velocity of money is 4. What is the value of real GDP? A. $2 trillion B. 8 trillion C. 6 Trillion D. 10.25 trillion E. None

Answer 67

B. 8 trillion MV=PY Y= MV / P Y= (10 * 4) / 5 Y= 40 / 5 Y= 8 p=5 m=10 v=4 y=?

Question 68

Example of structural unemployment? A. Factory worker temporally laid off during a recession. B. Recent Graduates C. A mother chooses to stay with child instead of working. D. Unskilled worker can’t get hired because the minimum wage is too high. E. A retired person living off her saving.

Answer 68

D. Unskilled worker can’t get hired because the minimum wage is too high.

Question 69

ccording to loan able funds framework, if business decides to eliminate or postpone expansion plans reducing their need to borrow? A. There will be excess demand in the loan able fund market B Interest rates will increase C. Interest rates will decrease D. Interest rates will not change E. Interest rates either can rise or fall

Answer 69

C. Interest rates will decrease

Question 70

If there is excess demand in the loan able fund market? A. Interest rates are above equilibrium B. Interest rates are below equilibrium C. Can be expected to rise D. A & C E. B & C

Answer 70

E. B & C

Question 71

If you take GDP and subtract the value of depreciation of the economy’s capital stock, you find the.************** A. Net domestic product. B. Net national product. C. GNP D. GDP Deflator E. Nominal GDP

Answer 71

A. Net domestic product.

Question 72

Sam, 2 drills process the furniture maker uses to produce tables are A. Physical capital B. Human capital. C. Natural resources. D. Technological resources E. None.

Answer 72

A. Physical capital

Question 73

Private property right enforceability means that you can use the reward from your effect to? A. Sale B. Consumers C. Investment D. Help the pue E. All

Answer 73

E. All

Question 74

If there is excess Supply in the loanable funds framework? ******** A. Interest Rates are above equilibrium. B. Total borrowing is greater than total spending. C. Interest Rates are below equilibrium. D. Both B & C E. Both A & C

Answer 74

A. Interest Rates are above equilibrium.

Question 75

The value of depreciation of the economy’s capital stock, you find the inflation 10 %, nominal 14, economic 8 %. What is real? A. 14 B. 6 C. 24 D. 4 E. 2

Answer 75

D. 4 (14 – 10 = 4)

Question 76

Which of the following is a form of monitory policy? A. Increasing the Money Supply faster than usual during recession. B. Cutting taxes during a recession C. Increase government’s spending during recession D. All E. None

Answer 76

A. Increasing the Money Supply faster than usual during recession.

Question 77

Real wages are equal to

Answer 77

Nominal wage divided by a price index

Question 78

The catch-up effect is the idea that a. it is harder for a country to grow fast when it is relatively poor. b. savings will always catch up with investment. c. poor countries with small capital stocks will grow faster that wealthy countries when investment increases. d. countries with large capital stocks will always grow faster than countries with small capital stocks.

Answer 78

c. poor countries with small capital stocks will grow faster that wealthy countries when investment increases.

Question 79

Education is an example of a. investment in physical capital. b. investment in human capital. c. investment in natural resources. d. technological change. e. none of the above.

Answer 79

b. investment in human capital.

Question 80

Which of the following programs is likely to increase the long run growth rate in US real GDP per person? a. A program designed to give money to poor people with no strings attached. b. A program to bailout unsuccessful companies. c. A more efficiently designed patent system. d. Items a, b, and c will all increase the long run growth rate in the US.

Answer 80

c. A more efficiently designed patent system.

Question 81

In economics, “Public Saving” is defined as a. Saving that is made public by disclosure to the IRS. b. Tax revenue minus government spending. c. National Income minus consumption. d. Deposits made at banks and other lending institutions. e. Investment in a publicly held company.

Answer 81

b. Tax revenue minus government spending.

Question 82

A person who did not have a job but was looking for work would be categorized as a. employed b. unemployed c. not in the labor force d. marginally unemployed e. partially employed

Answer 82

b. unemployed

Question 83

Which of the following statements most accurately describes the relationship between the nominal and real interest rates? a. The real interest rate is the expected inflation rate plus the nominal interest rate. b. The real interest rate is the expected inflation rate minus the nominal interest rate. c. The real interest rate is the nominal interest rate minus the expected inflation rate. d. The real interest rate is the nominal interest rate multiplied by the expected inflation rate. e. None of the above statements is accurate.

Answer 83

c. The real interest rate is the nominal interest rate minus the expected inflation rate.

Question 84

The aggregate supply-aggregate demand model predicts that the short-run effect of an unexpected decrease in taxes is: a. A decrease in the price level and an increase in real output. b. An increase in both the price level and real output. c. An increase in the price level and a decrease in real output. d. A decrease in both the price level and real output. e. No effect on the price level and a decrease in real output.

Answer 84

b. An increase in both the price level and real output.

Question 85

The government increases spending by $200 million. This increases the incomes of the people who receive it, and they use their higher income to buy more goods and services. The people who produce those goods and services get paid more, and they use their higher income to buy even more goods and services. What process is being described here? a. the Keynesian multiplier b. increasing returns to investment c. the money multiplier d. the GDP inflator

Answer 85

a. the Keynesian multiplier

Question 86

The Real GDP of a country is a. the total income earned by a nation’s permanent residents in a given time period divided by the GDP deflator. b. the market value of all final goods and services produced within a country in a given time period, using prices from a “base” year to calculate the market value. c. the market value of all final goods and services produced within a country in a given time period, using prices from the current year to calculate the market value. d. the market value of all final goods and services produced within a country minus losses from depreciation in a given time period. e. none of the above.

Answer 86

b. the market value of all final goods and services produced within a country in a given time period, using prices from a “base” year to calculate the market value.

Question 87

Which of the following is not an example of input growth that is a potential source of economic growth? a. immigration b. growth of the capital stock c. development of new technologies that reduce energy use. d. greater investment in workers’ skills

Answer 87

a. immigration

Question 88

Countries that devote a large share of GDP to investment, such as Singapore and S. Korea, tend to have a. high growth rates. b. stable growth rates. c. low growth rates. d. highly cyclical growth rates. e. there is no relationship between investment and growth.

Answer 88

c. low growth rates.

Question 89

Which of the following is most likely to encourage economic growth? a. stable private property rights b. an extensive welfare system c. frequent military take-overs of the government d. a shrinking labor force e. a fixed capital stock

Answer 89

a. stable private property rights

Question 90

If expected inflation is 2%, the real interest rate is 7% and the economy is growing at a rate of 4%, the nominal interest rate is equal to a. 9% b. 5% c. 7% d. 6%

Answer 90

a. 9% (Real Interest Rate=Nominal Interest Rate – Inflation)

Question 91

A person who is switching careers and is unemployed while looking for a better job is an example of a. Cyclical Unemployment b. Frictional Unemployment c. Structural Unemployment d. Reciprocal Unemployment e. Transitional Employment

Answer 91

b. Frictional Unemployment

Question 92

Suppose that the Velocity of money were to suddenly increase in the United States. Use the quantity equation to identify which of the following statements is true. a. If the Money Supply and real GDP are constant, then the price level in the United States is likely to fall. b. If the Money Supply and the price level are constant, then real GDP is likely to fall. c. If the Money Supply and the price level are constant, then real GDP is likely to rise. d. If the Money Supply is constant, then nominal GDP is likely to fall. e. None of the above statements are consistent with the quantity equation.

Answer 92

c. If the Money Supply and the price level are constant, then real GDP is likely to rise.

Question 93

Which of following helps explain the negative slope of the aggregate demand curve? a. A lower price level increases real wealth, which encourages spending on consumption. b. A lower price level reduces the interest rate, which encourages spending on investment. c. A lower price level causes the real exchange rate to depreciate, which encourages spending on net exports. d. All of the above. e. None of the above.

Answer 93

c. A lower price level causes the real exchange rate to depreciate, which encourages spending on net exports.

Question 94

Congress passes a tax cut because economists predict a coming recession. This is an example of what? a. Automatic stabilization. b. Active fiscal policy. c. Discretionary monetary policy. d. Non-discretionary monetary policy. e. none of the above.

Answer 94

b. Active fiscal policy.

Question 95

In the U.S., the organization that is responsible for monetary policy is a. the Congress. b. the President. c. the Federal Reserve. d. a cartel of private banks. e. the Supreme Court.

Answer 95

c. the Federal Reserve.

Question 96

A merchandise trade deficit a. occurs when net exports are positive. b. occurs when imports are greater than exports. c. is usually accompanied by decreases in foreign investment in the U.S. d. occurs when domestic investment is less than domestic saving. e. none of the above.

Answer 96

b. occurs when imports are greater than exports.

Question 97

Which of the following factors affect a country’s net foreign investment? a. real interest rates paid on foreign assets b. real interest rates paid on domestic assets c. government policies that affect foreign ownership of domestic assets d. all of the above e. none of the above

Answer 97

d. all of the above

Question 98

The Consumer Price Index a. is an attempt to measure the cost of living for a typical family b. measures price changes in a basket of goods bought by a typical family c. weights prices by the quantities bought by a typical family in the base year d. all of the above e. none of the above

Answer 98

e. none of the above

Question 99

An aggregate production function shows the relationship between a. the quantity of inputs used in production and the quantity of output. b. gross domestic product and national income. c. workers as inputs and consumers as buyers. d. production and spending. e. none of the above.

Answer 99

a. the quantity of inputs used in production and the quantity of output.

Question 100

A government can increase long-run economic growth by a. discouraging saving. b. encouraging education and training of labor. c. increasing the taxation of capital. d. imposing restrictions on international trade. e. all of the above.

Answer 100

b. encouraging education and training of labor.

Question 101

Reserve requirements are regulations concerning a. the amount of deposits banks are allowed to accept. b. the amount of reserves banks must hold against deposits. c. the total amount of loans banks are allowed to make. d. the interest rate at which banks can borrow from the Fed. e. the number of open market transactions the Fed can perform.

Answer 101

b. the amount of reserves banks must hold against deposits.

Question 102

Which of the following statements most accurately describes the “Fisher Effect”? a. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates fall. b. The Fisher Effect states that when the the rate at which the money supply grows is increased, real interest rates fall. c. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates rise. d. The Fisher Effect states that when the rate at which the money supply grows is increased real interest rates rise. e. None of the above statements are correct.

Answer 102

c. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates rise.

Question 103

The aggregate demand curve shows a. the quantity of goods and services that households, firms, and the government want to buy at each price level. b. the quantity of goods and services that households, firms, and the government want to buy at each interest rate. c. the quantity of goods and services that households (not firms) want to buy at each price level. d. the quantity of goods and services that firms (not households) want to buy at each interest rate.

Answer 103

a. the quantity of goods and services that households, firms, and the government want to buy at each price level.

Question 104

Most economists argue that an effective monetary policy would a. create money faster during recessions and more slowly during booms. b. create money faster all the time. c. create money more slowly all the time. d. create money faster during booms and more slowly during recessions. e. create money slowly during booms and not at all during recessions.

Answer 104

a. create money faster during recessions and more slowly during booms.