Poe exam 3

Question 1

An increase in aggregate demand is most likely to be caused by a

Increase in real interest rates
Decrease in government spending
Decrease in expected returns on investment
Decrease in the tax rates on household income

Answer 1

Decrease in the tax rates on household income

Question 2

When looking at data for unemployment and inflation in the 1950s and 1960s there is evidence supporting the short-run Phillips curve model

True
False

Answer 2

true

Question 3

a reduction in personal income taxes will cause:

The short-run Phillips curve to shift to the left

The short run Phillips curve to shift right

Movement upward along the short run Phillips curve

Movement downward alone the short-run Phillips curve

Answer 3

Movement upward along the short run Phillips curve

Question 4

the SHORT-RUN version of aggregate supply assumes that product prices are

Fixed while resources prices are flexible

Flexible while resource prices are fixed

Both input and product prices are flexible

Both input and product prices are fixed

Answer 4

flexible while resource prices are fixed

Question 5

Answer the next question based on the following list of items that are related to aggregate demand and/or aggregate supply.
(1) Government Spending
(2) Consumer Expectations
(3) Degree of Excess Capacity
(4) Personal Income Tax Rates
(5) National Income Abroad
(6) Business Taxes
(7) Domestic Resource Availability
(8) Prices of Imported Products
(9) Profit Expectations on Investments

Which combination of factors best explain why the aggregate supply curve would shift?

1 and 2
2 and 9
3 and 5
6 and 7

Answer 5

6 and 7

Question 5

The aggregate demand curve or schedule shows the relationship between the total demand for output and the

Multiple Choice
income level.
interest rate.
price level.
real GDP.

Answer 5

Price level

Question 6

If aggregate demand increases and aggregate supply decreases, the price level

Multiple Choice
will decrease, but real output may increase, decrease, or remain unchanged.

will increase, but real output may increase, decrease, or remain unchanged.

and real output will both increase.

and real output will both decrease.

Answer 6

will increase, but real output may increase, decrease, or remain unchanged.

Question 7

Assuming an economy is initially at full employment, where will the graph shift/move if there is a recession?
(X-axis real gdp y-axis price level)

Answer 7

to the left (decrease in real gdp)

Question 8

Inflation that occurs when total spending is greater than the economy’s ability to produce output at the existing price level is

Multiple Choice
expected inflation.
demand-pull inflation.
cost-push inflation.
unexpected inflation.

Answer 8

demand-pull inflation.

Question 9

Suppose that oil prices increase sharply while the rate of growth in labor productivity declines. The combination of these two factors should

Multiple Choice

shift the aggregate demand curve to the left.

shift the aggregate demand curve to the right.

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

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

Answer 9

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

Question 10

A movement upward along a given aggregate demand curve is equivalent to a(n)

Multiple Choice
increase in aggregate supply.
increase in aggregate demand.
upward shift in the aggregate expenditures schedule.
downward shift in the aggregate expenditures schedule.

Answer 10

downward shift in the aggregate expenditures schedule.

Question 11

Stagflation

Answer 11

high inflation and low economic growth

Question 12

Which of the diagrams best portrays stagflation?
(See Noteful for graphs #13)

Graph a
Graph b
Graph c
Graph d

Answer 12

graph b

Question 13

If government purchases increase by $10 billion and the economy’s MPC is .8, the aggregate demand curve will shift

Multiple Choice
leftward by $50 billion at each price level.

rightward by $10 billion at each price level.

rightward by $50 billion at each price level.

leftward by $40 billion at each price level.

Answer 13

rightward by $50 billion at each price level.

Question 14

An increase in production costs is most likely to shift the

Multiple Choice

aggregate demand curve to the left.

aggregate demand curve to the right.

short-run aggregate supply curve to the left.

short-run aggregate supply curve to the right.

Answer 14

Short-run aggregate supply curve to the left

Question 15

If the MPC in an economy is 0.9, the government could shift the aggregate demand curve rightward by $40 billion by

Multiple Choice

increasing government purchases by $4 billion.

increasing government purchases by $40 billion.

decreasing taxes by $4 billion.

increasing taxes by $4 billion.

Answer 15

increasing government purchases by $4 billion.

Question 15

Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy’s current level of output is $1,100 and at the price level of 100 current aggregate demand is $1,200. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.8, then it should increase taxes by

Multiple Choice
$25.
$50.
$100.
$200.

Answer 15

$50

Question 16

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it would increase government purchases by

Multiple Choice
$10 billion.
$20 billion.
$31.25 billion.
$40.50 billion.

Answer 16

20

Question 17

One key purpose of fiscal policy is to ________ volatility in the business cycle.

Multiple Choice
eliminate
increase
maintain
reduce

Answer 17

Reduce

Question 18

If a tax cut of $12 billion causes real GDP to increase by $36 billion, then the tax multiplier is

Multiple Choice
2.
3.
4.
5.

Answer 18

3

Question 19

Assume that the full-employment level of output is $600 and the price level associated with full-employment output is 100. Also assume that the economy’s current level of output is $550 and, at the price level of 100, current aggregate demand is $450. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.9, then it should

Multiple Choice

increase government purchases by $150.

increase government purchases by $50.

increase government purchases by $15.

increase government purchases by $5.

Answer 19

Increase government purchases by $15

Question 20

XYZ Gadget Company is currently considering which investment projects it should undertake. The following list of projects along with the estimated rate of return of each project is presented to the executive management team:
Project A (9%)
Project B (7.5%)
Project C (6%)
Project D (11%)
Project E (5.5%)
The current interest rate in the loanable funds market is 7%. However, the government is considering an increase in government borrowing to implement fiscal policy. How high would interest rates need to go to induce the company to drop all but one of its planned investment projects?

Multiple Choice
Above 7%
Above 7.5%
Above 9%
Above 11%

Answer 20

Above 9%

Question 21

In the diagram, Y* is the full-employment output. An expansionary fiscal policy would be most appropriate and needed if the economy’s present aggregate demand curve were at

Multiple Choice

AD0 or AD1.

AD1.

AD2.

AD3.

Answer 21

AD0 or AD1

Question 22

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by

Multiple Choice
increasing taxes by $30 billion.
reducing government expenditures by $14 billion.
increasing taxes by $22.5 billion.
reducing government expenditures by $90 billion.

Answer 22

Increasing taxes by 30 billion

Question 23

During a period of rapid economic expansion an economy might experience

Multiple Choice
demand-pull inflation.
low levels of employment.
reduced tax revenues.
increased transfer payments.

Answer 23

Demand pull inflation

Question 24

If fiscal policy implementation causes some crowding out, the _________ shift of the aggregate demand curve will be ________ than it would have been if no crowding out had occurred.

Multiple Choice
rightward; larger
rightward; smaller
leftward; larger
leftward; smaller

Answer 24

Rightward; smaller

Question 25

During a recession, the quickest way for the government to increase economic output would be to

Multiple Choice
reduce government purchases and increase taxes.
increase government purchases and reduce taxes.
reduce government purchases and reduce taxes.
increase government purchases and increase taxes.

Answer 25

Increase government purchases and reduce taxes

Question 26

The goal of expansionary fiscal policy is to increase

Multiple Choice
the price level.
aggregate supply.
real GDP.
unemployment.

Answer 26

Real GDP

Question 27

Which of the following fiscal policy changes would be the most contractionary?

Multiple Choice
A $40 billion increase in taxes
A $10 billion increase in taxes and a $30 billion cut in government purchases
A $20 billion increase in taxes and a $20 billion cut in government purchases
A $30 billion increase in taxes and a $10 billion cut in government purchases

Answer 27

A $10 billion increase in taxes and a $30 billion cut in government purchases

Question 28

In the diagram, Y* is the full-employment output. If the economy’s present aggregate demand curve is AD2,

Multiple Choice

the most appropriate fiscal policy is an increase in government purchases or a reduction of taxes.

the most appropriate fiscal policy is a reduction in government purchases or an increase of taxes.

the government should undertake neither an expansionary nor a contractionary fiscal policy.

the economy is achieving its maximum possible output.

Answer 28

the government should undertake neither an expansionary nor a contractionary fiscal policy.

Question 29

(See graph on Noteful)
The vertical money supply curve MS reflects the fact that

Multiple Choice
bond prices and interest rates are inversely related.
the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.
the rate at which money is spent is zero.
lower interest rates result in lower opportunity costs of supplying money.

Answer 29

the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

Question 30

Holding the money deposits of businesses and households and making loans to the public are the basic functions of

Multiple Choice
district banks of the Federal Reserve System.
commercial banks and thrift institutions.
the Open Market Committee and the Board of Governors.

the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation.

Answer 30

commercial banks and thrift institutions.

Question 31

See graphs on Noteful
The total demand for money is shown by

Multiple Choice

MD,1

MD,2.

MD,3.

MS.

Answer 31

MD3

Question 32

Suppose there is a decrease in money supply, as a result interest rates will

Multiple Choice

rise and the quantity of money will decrease.

rise and the quantity of money will remain constant.

fall and the quantity of money will increase.

fall and the quantity of money will decrease.

Answer 32

A

Question 33

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Multiple Choice
$75,000.
$25,000.
$5,000.
$100,000.

Answer 33

100k

Question 34

The transactions demand for money is least likely to be a function of the

Multiple Choice
price level.
interest rate.
level of national income.
frequency of wage and salary payments.

Answer 34

Interest rate

Question 35

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1,000. If the price of this bond increases by $2,500, the interest rate in effect will

Multiple Choice
decrease by 1 percentage point.
decrease by 2 percentage points.
increase by 1 percentage point.
increase by 2 percentage points.

Answer 35

Decrease by 2 percentage points

Question 36

A reserve requirement of 20 percent means a bank must have at least $1,000 of reserves if its checkable deposits are

Multiple Choice
$100.
$1,000.
$5,000.
$12,000.

Answer 36

5k

Question 37

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of

Multiple Choice
2 percent.
4 percent.

6 percent.

10 percent.

Answer 37

10 percent

Question 38

When loans are repaid at commercial banks

Multiple Choice
money is created.
money is destroyed.
the assets of commercial banks increase.
the net worth of commercial banks increases.

Answer 38

Money is destroyed

Question 39

Finding two parties who both have something the other party wishes to trade for is called a

Multiple Choice

unit of account.

double coincidence of wants.

store of value.

medium of exchange.

Answer 39

Double coincidence of wants

Question 40

See Noteful for table

If the money supply equals $300 billion and the transaction demand for money equals $200 billion, the equilibrium interest rate is

Multiple Choice
4 percent.
5 percent.
6 percent.
7 percent.

Answer 40

6 percent

Question 41

In the graph, Mt is the transactions demand for money, MD is the total demand for money, and MS,2 is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply then decreases to MS,1, the transaction demand for money will change by

Multiple Choice
$175.
$125.
$75.
$0.

Answer 41

0

Question 42

The M1 money supply is composed of

Multiple Choice

all coins and paper money held by the general public and the banks.
bank deposits of households and business firms.

bank deposits and mutual funds.

checkable deposits, currency in circulation, and savings accounts.

Answer 42

checkable deposits, currency in circulation, and savings accounts.

Question 43

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are

Multiple Choice
$50,000.
$100,000.
$900,000.
$1 million.

Answer 43

100k

Question 44

A bank owns a 10-story office building. In the bank’s balance sheet, this would be listed as part of

Multiple Choice
assets.
liabilities.
capital stock.
net worth.

Answer 44

Assets

Question 45

See Noteful for table

If the reserve requirement is 15 percent and the table above represents the balance sheet for the whole commercial banking system rather than a single bank, then loans and deposits could expand by a maximum of approximately

Multiple Choice
$120,000.
$213,333.
$333,500.
$415,373.

Answer 45

213,333

Question 46

Commercial banks are divided into _____ bank Federal Reserve regions?

Multiple Choice
52
12
7
19

Answer 46

12

Question 47

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the

Multiple Choice
prime rate.
federal funds rate.
Treasury bill rate.
discount rate.

Answer 47

Discount rate

Question 48

All else held constant, if the supply of money is increased

Multiple Choice
the demand for money will increase.
the interest rates will rise.
bond prices will fall.
investment spending will increase.

Answer 48

Investment spending will increase

Question 49

Which of the following statements is true?

Multiple Choice
The Federal Reserve sets the federal funds rate.

The Federal Reserve sets the target for the federal funds rate, and then uses the reserve requirement to push banks toward that target.
The Federal Reserve does not set the federal funds rate, but it influences it through the use of its open-market operations.
The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.

Answer 49

The Federal Reserve does not set the federal funds rate, but it influences it through the use of its open-market operations.

Question 50

See Noteful for graphs

Assume the economy is on aggregate demand AD1. The Fed should

Multiple Choice
move from MS1 to MS2 to lower interest rate and increase investment.
move from MS1 to MS2 to lower interest rate and lower investment.
move from MS1 to MS3 to raise interest rate and lower investment.
move from MS1 to MS3 to raise interest rate and raise investment.

Answer 50

A

Question 51

The impact of monetary policy on investment spending may be weakened

Multiple Choice
because of the Treasury’s desire for high interest rates.
if the rate at which dollars are spent changes in the same direction as the money supply.

if the investment demand curve shifts to the right during inflation and to the left during recession.

if the investment demand curve is very flat.

Answer 51

if the investment demand curve shifts to the right during inflation and to the left during recession.

Question 52

Which of the following is an example of an economic investment?

Multiple Choice
putting money in a bank CD
buying a corporate bond or stock
purchasing shares of a mutual fund
building a new bank office

Answer 52

Building a new bank office

Question 53

Which of the following statements best describes what occurs when monetary authorities sell government securities?

Multiple Choice
The size of commercial banks’ excess reserves decreases, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.

The size of commercial banks’ excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.

The size of commercial banks’ excess reserves decreases, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.

The size of commercial bank reserves increases, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.

Answer 53

The size of commercial banks’ excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.

Question 54

Which of the following Fed actions increases the excess reserves of commercial banks?

Multiple Choice
selling bonds to the public
selling bonds to commercial banks
increasing the discount rate

lower the reserve requirement

Answer 54

Lower the reserve requirement

Question 55

Suppose that, for every 1 percentage point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve requirement is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will

Multiple Choice
increase by $1 billion and the money supply will increase by $5 billion.
decline by $1 billion and the money supply will decline by $10 billion.
increase by $1 billion and the money supply will increase by $10 billion.
increase by $10 billion and the money supply will increase by $100 billion.

Answer 55

increase by $1 billion and the money supply will increase by $10 billion.

Question 56

Contractionary monetary policy should initially change gross investment by

Multiple Choice
more than necessary to reach full employment.
less than necessary to reach full employment.
enough to reach full employment.
an amount determined by the money multiplier.

Answer 56

less than necessary to reach full employment.

Question 57

Lowering the reserve requirement

Multiple Choice
increases the total reserves in the banking system.
also reduces the discount rate.
turns required reserves into excess reserves.
reduces the amount of excess reserves the banks keep.

Answer 57

turns required reserves into excess reserves.

Question 58

Lowering the discount rate has the effect of

Multiple Choice

turning required reserves into excess reserves.

turning excess reserves into required reserves.
making it less expensive for commercial banks to borrow from central banks.
forcing commercial banks to call in outstanding loans from their best customers.

Answer 58

making it less expensive for commercial banks to borrow from central banks.

Question 59

See Noteful for graph

If the Fed wants to raise the federal funds rate by one-half of a percentage point, it should

Multiple Choice
act to increase reserves by $50 billion.
act to reduce reserves by $50 billion.
pursue an expansionary monetary policy.
buy bonds from banks and the public.

Answer 59

Act to reduce reserves by 50 billion

Question 60

Graph on note

Based on this diagram, we can say

Multiple Choice
investment demand will not respond when interest rates change.
crowding out is limiting the effectiveness of expansionary monetary policy.
monetary policy is likely to be pro-cyclical.
there is a liquidity trap.

Answer 60

There is a liquidity trap

Question 61

Suppose that, for every 1 percentage point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve requirement is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will

Multiple Choice
increase by $0.5 billion and the money supply will increase by $2.5 billion.
decline by $0.5 billion and the money supply will decline by $2.5 billion.
increase by $0.75 billion and the money supply will increase by $3.75 billion.
increase by $1 billion and the money supply will increase by $5 billion.

Answer 61

decline by $0.5 billion and the money supply will decline by $2.5 billion.

Question 62

Suppose the Federal Reserve decides to increase the interest rate it pays on reserves, causing excess reserves holdings to increase by $2.5 billion. If the reserve requirement is 20 percent, how will the money supply change?

Multiple Choice
−$0.5 billion
0.5 billion
−$12.5 billion
$12.5 billion

Answer 62

-12.5 bill

Question 63

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

Multiple Choice
selling government securities and raising the discount rate
selling government securities and lowering the discount rate
buying government securities and lowering the discount rate

buying government securities and raising the reserve requirement

Answer 63

buying government securities and lowering the discount rate

Question 64

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Multiple Choice
prime rate.
federal funds rate.
discount rate.
consumer price index.

Answer 64

Federal fund rate

Question 65

Milton Friedman argued nearly all economic fluctuations were caused by

Multiple Choice
sticky wages.
unexpected demand shocks.
changes in the money supply.
changes in government spending.

Answer 65

Changes in money supply

Question 66

Which of the following ideas is associated with mainstream economics?

Multiple Choice

Capitalist economies tend to be stable.

Monetary policy rules are desirable.

Crowding-out of investment makes fiscal policy ineffective.

Fiscal policy is a useful stabilization tool.

Answer 66

Fiscal policy is a useful stabilization tool.

Question 67

According to mainstream macroeconomists, U.S. macro instability has resulted from

Multiple Choice

changes in investment spending.

adherence by the Fed to a monetary rule.

government’s attempts to balance its budget.

wide fluctuations in net exports.

Answer 67

changes in investment spending.

Question 68

An unexpected demand shock has shifted demand for labor from D1 to D2. According to John Maynard Keynes, the best way to move the economy back to D1 is by

Multiple Choice
allowing the recession to run its course.
implementing expansionary fiscal policy.
implementing expansionary monetary policy.
using government regulation to reduce wages.

Answer 68

implementing expansionary fiscal policy.

Question 69

You are at a party with an economist who is arguing for a more active stabilization policy. This economist most likely associates with

Multiple Choice
New Classical economics.
New Keynesian economics.
Rational Policy economics.
Government Stabilization economics.

Answer 69

New Keynesian economics.

Question 70

From a monetarist perspective, instability in the macro economy arises from

Multiple Choice
secular trends in the economy.
the instability of velocity as a policy tool.
changes in monetary policy.
the use of a monetary rule for monetary policy.

Answer 70

Changes in monetary policy

Question 71

John Maynard Keynes viewed wages as sticky, implying that wages

Multiple Choice
cannot adjust in the long run.
cannot adjust in the short run.
can adjust upward but not downward.
can adjust downward but not upward.

Answer 71

can adjust upward but not downward.

Question 72

Compared to a New Classical economist, a New Keynesian economist would argue for

Multiple Choice
minimal entitlement programs.
a more active role for government.
a more laissez-faire approach for government.
fewer automatic stabilizer and less discretionary spending.

Answer 72

a more active role for government.

Question 73

Keynes theorized unemployment and inflation

Multiple Choice
always have a direct relationship.
always have an indirect relationship.
are independent during a recession, but indirect during a period of inflation.
have a direct relationship during a recession but are independent during a period of inflation.

Answer 73

always have an indirect relationship.

Question 74

The Shadow Open Market Committee, a group of economists with the monetarist point of view, calls for a reduction in the money supply. They must be concerned about

Multiple Choice
high levels of unemployment.
falling levels of real GDP.
rising rates of inflation.
new technological breakthroughs that might increase the growth rate of real GDP.

Answer 74

rising rates of inflation.

Question 75

Which of the following statements would most likely be made by someone following New Classical economic models?

Multiple Choice
A set of contractionary monetary policies would help to reduce the inflation rate.
The economy just experienced a demand shock, the markets will correct to reduce unemployment.
The economy has been experiencing sustained unemployment, government intervention is necessary.
The level of government intervention in the last recession was not enough to impact the market.

Answer 75

The economy just experienced a demand shock, the markets will correct to reduce unemployment.

Question 76

According to mainstream economists the basic determinant of real output, employment, and the price level is

Multiple Choice
information and people’s expectations.
the level of aggregate expenditures.
the incentive to work, save, and invest.
the supply of money.

Answer 76

the level of aggregate expenditures.

Question 77

Real business cycle theory suggests that changes in

Multiple Choice

monetary policy is the single most important cause of macroeconomic instability.
investment spending will have a direct and significant effect on aggregate demand.
technology and resources affect productivity, and thus the long-run growth of aggregate supply.
the velocity of money is gradual and predictable and thus able to accommodate the long-run changes in nominal GDP.

Answer 77

technology and resources affect productivity, and thus the long-run growth of aggregate supply.

Question 78

The view that changes in the money supply is the primary cause of changes in real output and the price level is most closely associated with

Multiple Choice
rational expectations theory.
real business cycle theory.
mainstream economics.

the monetarist view.

Answer 78

Monetarist view

Question 79

Rational expectations theory assumes

Multiple Choice
consumer behavior is static.
consumers will change their behavior, but it takes time.
consumers will adjust to their current situation immediately.
consumers lack full information and would benefit from improved expectations.

Answer 79

consumers will adjust to their current situation immediately.

Question 80

During the 1970s U.S. stagflation, the Phillips Curve was found to be

Multiple Choice
accurate fueling supported Keynes’ theory.
false fueling supported Keynes’ theory.
accurate raising concerns with Keynes’ theory.
false raising concerns with Keynes’ theory.

Answer 80

false raising concerns with Keynes’ theory.

Question 81

Which of the following statements about Keynes’ original theories is true?

Multiple Choice
All of his theories have been proven true.
Some of his theory have held, while there are concerns with others.
All of his theories have been proven false but are useful when modeling the economy.
All of his theories have been proven false and the theories he explained are no longer utilized.

Answer 81

Some of his theory have held, while there are concerns with others.

Question 82

Mainstream economists support

Multiple Choice

adoption of a monetary rule for increases in the money supply.

elimination of efficiency wages and insider-outsider relationships.

the requirement that the government annually balance its budget.

the use of fiscal policy for achieving major economic goals.

Answer 82

the use of fiscal policy for achieving major economic goals.

Question 83

One of Friedman’ s criticisms of Keynes was

Multiple Choice
wages are sticky both upward and downward.
interest rates and money can influence real GDP.
inflation and unemployment are indirectly related.
current consumption depends only on current income.

Answer 83

interest rates and money can influence real GDP.

Question 84

See note
The world price of the product is $6. If the market is open to international trade but there is a tariff of $2 per unit imposed, the total government revenue generated by the tariff would be

Multiple Choice
$40.
$60.
$80.
$100.

Answer 84

80

Question 85

Suppose the domestic price (without international trade) of copper is $1.20 per pound in the United States while the world price is $1.00 per pound. Assuming the small-country model is applicable and no transportation costs, the United States will

Multiple Choice
have a domestic surplus of copper.
export copper.
import copper.
neither export nor import copper.

Answer 85

Import

Question 86

Notes
Sd + Q is the product supply curve after an import quota is imposed. The effect of the import quota on domestic price and domestic consumption is

Multiple Choice

the same as that of a tariff of Pt−Pc.

the same as that of a tariff of Pa−Pt.

the same as that of a tariff of Pa−Pc.

to raise price higher and lower consumption further than a tariff of Pt−Pc.

Answer 86

A

Question 87

Note

If the world price for this product is $1.60, this nation will experience a domestic

Multiple Choice
shortage of 160 units, which it will meet with 160 units of imports.
shortage of 160 units, which will increase the domestic price to $1.60.
surplus of 160 units, which it will export.
surplus of 160 units, which will reduce the world price to $1.00.

Answer 87

surplus of 160 units, which it will export.

Question 88

Note

Which of the following would be feasible terms for trade between Latalia and Trombonia?

Multiple Choice
1 ton of beans for 1 ton of pork
2 tons of beans for 1 ton of pork
6 tons of beans for 1 ton of pork
4 tons of beans for 1 ton of pork

Answer 88

4 tons of beans for 1 ton of pork

Question 89

NoteAfter trade, at a world price of Pw, total economic surplus equals area(s)

Multiple Choice

A + B + C + D.

A + B + C + D + E + F.

A + B + C + E + F + J + I.
D.

Answer 89

A + B + C + D + E + F.

Question 90

When a quota on a product is removed, this policy action

Multiple Choice
benefits domestic producers of the product.
benefits consumers of the product.
benefits the government.
hurts nations exporting the product.

Answer 90

benefits consumers of the product.

Question 91

When a nation removes restrictions on imported products that nation will

Multiple Choice
experience higher prices and consume lower quantities.

experience higher prices and consume higher quantities.

experience lower prices and consume lower quantities.

experience lower prices and consume higher quantities.

Answer 91

experience lower prices and consume higher quantities.

Question 92

If the world price of a product rises relative to the domestic price in a trading nation, then for that product

Multiple Choice
exports and imports will increase.
exports and imports will decrease.
exports will increase or imports will decrease.
imports will increase or exports will decrease.

Answer 92

C

Question 93

If the world price of a product rises relative to the domestic price in a trading nation, then for that product

Multiple Choice
exports and imports will increase.
exports and imports will decrease.
exports will increase or imports will decrease.
imports will increase or exports will decrease.

Answer 93

Quota

Question 94

In effect, tariffs on imports are

Multiple Choice
special taxes on domestic producers.
subsidies for domestic consumers.
subsidies for foreign producers.
subsidies for domestic producers.

Answer 94

D