FINAL EXAM Flashcards
(108 cards)
1
Q
Which of the following are NOT Federal Reserve monetary policy goals? A) moderate long-term interest rates B) price level stability C) maximum employment D) zero percent unemployment.
A
D
2
Q
In the short run, the Federal Reserve faces a tradeoff between
A) economic growth and employment.
B) inflation and price stability.
C) inflation and unemployment.
D) real GDP growth and potential GDP growth.
A
C
3
Q
Which of the following is a potential monetary policy instrument for the Fed? A) federal funds rate B) government budget deficit C) income tax rates D) profit rates
A
A
4
Q
The federal funds rate is the interest rate
A) banks charge each other on overnight loans.
B) on the 3-month Treasury bill.
C) on the 30-year treasury bond.
D) that the Fed charges commercial banks on loans.
A
A
5
Q
An increase in the quantity of reserves leads to a
A) fall in the federal funds rate.
B) decrease in the price level.
C) reduction in the velocity of circulation.
D) leftward shift in the demand curve for reserves.
A
A
6
Q
If the Fed buys U.S. government securities A) the federal funds rate will fall. B) the federal funds rate will rise. C) bank reserves will decrease. D) the discount rate will rise.
A
A
7
Q
If the Fed wanted to stimulate the economy to limit the effects of a recession, then it should \_\_\_\_\_\_\_\_ the federal funds rate in order to \_\_\_\_\_\_\_\_ the real interest rate and thereby \_\_\_\_\_\_\_\_ investment. A) lower; lower; increase B) lower; raise; increase C) raise; raise; decrease D) lower; lower; decrease
A
A
8
Q
Federal Reserve monetary policy goals include
A) ensuring banks can meet their profit maximization objectives.
B) discount rate stability.
C) zero percent unemployment in the domestic economy.
D) price level stability.
A
D
9
Q
The Federal Reserve monetary policy goals of maximum employment mean
A) a zero percent unemployment rate.
B) a zero percent natural unemployment rate.
C) keeping the unemployment rate close to the natural unemployment rate.
D) that cyclical unemployment should not necessarily be minimized.
A
C
10
Q
Which of the following are monetary policy instruments available to the Fed as it tries to achieve its macroeconomic goals?
I. government expenditures on goods and services and taxes
II. the government budget deficit or surplus
III. changes in the federal funds rate
A) I and II
B) III only
C) II and III
D) II only
A
B
11
Q
If the Fed wants to raise the federal funds rate, it needs to
A) buy government securities in order to increase the quantity of reserves.
B) sell government securities in order to decrease the quantity of reserves.
C) buy government securities in order to decrease the quantity of reserves.
D) sell government securities in order to increase the quantity of reserves.
A
B
12
Q
In order to combat a recession, the Fed will \_\_\_\_\_\_\_\_ the federal funds rate and thereby \_\_\_\_\_\_\_\_ the quantity of money. A) raise; increasing B) lower; increasing C) raise; decreasing D) lower; decreasing
A
B
13
Q
Fiscal policy includes
A) only decisions related to government expenditure on goods and services.
B) only decisions related to government expenditure on goods and services and the value of transfer payments.
C) only decisions related to the value of transfer payments and tax revenue.
D) decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.
A
D
14
Q
Changes in which of the following is included as part of fiscal policy? A) the quantity of money B) the level of interest rates C) monetary policy D) tax rates
A
D
15
Q
Taxes and government expenditures that change in response to changes in the level of economic activity, without need for additional government action, are examples of A) discretionary fiscal variables. B) automatic fiscal policy. C) built-in monetary stabilizers. D) cyclically balanced budgets.
A
B
16
Q
If the government wants to engage in fiscal policy to increase real GDP, it could
A) increase government expenditure in order to increase supply.
B) decrease government expenditure in order to increase supply.
C) increase government expenditure in order to increase demand.
D) decrease government expenditure in order to decrease demand.
A
C
17
Q
Using fiscal policy, to increase real GDP and employment the government could \_\_\_\_\_\_\_\_ government expenditure on goods and services or \_\_\_\_\_\_\_\_ taxes. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
A
B`
18
Q
Fiscal policy attempts to achieve all of the following objectives EXCEPT \_\_\_\_\_\_\_\_. A) a stable money supply B) price level stability C) full employment D) sustained economic growth
A
A
19
Q
All of the following are tools used to conduct fiscal policy EXCEPT
A) setting tax rates.
B) setting government spending.
C) choosing the size of the government deficit.
D) controlling the money supply.
A
D
20
Q
Which of the following events decreases demand for a country’s goods and services, all else equal?
A) an increase in consumption expenditures
B) a decrease in taxes
C) a decrease in government expenditures on goods and services
D) an increase in net exports of goods and services
A
C
21
Q
Which of the following does NOT describe a function of money? A) unit of account B) hedge against inflation C) medium of exchange D) store of value
A
B
22
Q
Commercial Banks
A) make profit on the difference between the interest rate they pay on deposits and the interest rate they receive on loans.
B) make a profit according to how much the Federal Reserve pays them.
C) make their profit by charging the government for their services.
D) make zero profit but receive compensation by the government because their services are so valuable.
A
A
23
Q
Which of the following is NOT one of the Fed’s monetary policy tools?
A) last resort loans
B) the required reserve ratio
C) the income tax rate
D) buying and selling U.S. government securities
A
C
24
Q
Which of the following explains why the demand for credit is negatively related to the real interest rate?
A) A lower real interest rate makes more investment projects profitable.
B) Consumers are willing to spend less and hence save more at higher real interest rates.
C) Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment.
D) All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.
A
A
25
If the government has a budget deficit, crowding out might occur. Crowding out leads to all of the following EXCEPT
A) a higher real interest rate.
B) a decreased quantity of investment.
C) a smaller capital stock in the future.
D) decreased private saving.
D
26
The aggregate production function shows that an economy increases its real GDP in the short run by
A) developing new technologies.
B) increasing its physical capital stock.
C) using more labor.
D) exploring for new deposits of natural resources.
C
27
```
Real wage rate
(2009 dollars per hour)
15
20
25
30
Quantity of labor demanded (billions of hours per year)
70
60
50
40
Quantity of labor supplied (billions of hours per year)
30
40
50
60
```
```
Real GDP
(trillions of 2009 dollars per year)
3
9
14
18
21
Quantity of labor
(billions of hours per year)
20
30
40
50
60
```
```
The tables above show the labor market and the production function schedule for the country of Pickett. Real GDP is equal to ________.
A) does not change
B) decreases to $3 trillion
C) increases to $50 trillion
D) increases to $18 trillion
```
D
28
Which of the following applies to an object serving as a store of value?
I. If an object can be held and exchanged later for a good or service, it serves as a store of value.
II. The less stable an object's value, the better it serves as a store of value.
III. A work of art can serve as a store of value.
A) I only
B) I and II
C) I and III
D) I, II and III
C
29
```
Nicholas is saving money collected from his paper route in order to purchase a new bicycle. His saving represents using money as
A) a medium of exchange.
B) a store of value.
C) an unit of account.
D) none of the above
```
B
30
Which of the following functions are performed by banks?
I. They make long-term loans using short-term deposits, thereby creating liquidity.
II. They efficiently gather funds from a large base of depositors.
III. They concentrate risk.
A) I only
B) II only
C) III only
D) I and II
D
31
```
The fraction of deposits that banks are required to keep is known as the
A) discount rate.
B) required reserve ratio.
C) deposit multiplier.
D) money multiplier.
```
B
32
The discount rate is the interest rate that
A) the Federal Reserve charges when it loans reserves to depository institutions.
B) is the lowest rate that banks will charge when lending to their best customers.
C) the Federal Reserve charges when it loans to the U.S. Government.
D) banks charge when they lend to each other.
A
33
```
The ________ rate is the interest rate at which the Fed lends ________ to depository institutions.
A) discount rate; reserves
B) discount rate; gold
C) federal funds rate; deposits
D) federal funds rate; reserves
```
A
34
An open market operation occurs when ________ buys or sells securities ________.
A) the Federal Reserve System; from or to the federal government
B) the Federal Reserve System; in the open market
C) a commercial bank; from or to the federal government
D) a commercial bank; from or to the public
B
35
When the Fed sells government securities to a bank, how are the Fed's assets affected?
A) The amount of the Fed's government securities decreases.
B) The amount of the Fed's government securities increases.
C) The amount of reserves held at the Fed increases.
D) The amount of reserves held at the Fed decreases.
A
36
```
The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. What was the opportunity cost of your evening at the movies?
A. Zero.
B. 70 percent
C. 10 percent off your grade.
D. 60 percent.
```
C
37
Scenario: A machine that can be used to print both notebooks and magazines is available for use for a fixed period of time. If it is used only to print notebooks, 30 notebooks can be printed. If it is used only to print magazines, 15 magazines can be printed.
What is the opportunity cost of printing 1 notebook?
A. 0.5 magazines
B. 30 magazines
C. 2 magazines
D. 1 magazine
A
38
Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change?
A. A leftward shift of the supply curve of Z
B. A rightward shift of the supply curve of Z
C. A leftward shift of the demand curve for Z
D. A rightward shift of the demand curve for Z
A
39
The Law of Demand states that ________.
A. the demand for a commodity always equals the supply of the commodity
B. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market
C. the demand for a commodity is directly related to consumers' income, all other things remaining constant
D. the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant
D
40
Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour.
```
Apartment
1
2
3
4
5
Commuting Time (hours per month)
40
20
10
4
1
Rent ($ per month)
1500
1750
2000
2210
2250
```
```
Refer to the scenario above. What is the total cost incurred per month if Ryan rents Apartment 3?
A. $2,270
B. $2,000
C. $2,150
D. $2,050
```
C
41
On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is
A. working out at the gym, having breakfast with friends, and sleeping late.
B. working out at the gym.
C. zero because you do not have to pay money to use the library.
D. not clear because not enough information is given.
B
42
Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour.
```
Apartment
1
2
3
4
5
Commuting Time (hours per month)
40
20
10
4
1
Rent ($ per month)
1500
1750
2000
2210
2250
```
```
Refer to the scenario above. The total cost per month is the highest if Apartment ________ is rented.
A. 5
B. 3
C. 2
D. 4
```
D
43
Which of the following creates an incentive to increase the amount of an activity?
A. a decrease in the marginal cost of the activity and an increase in the marginal benefit of the activity
B. constant marginal cost and constant marginal benefit of the activity
C. an increase in the marginal cost of the activity and a decrease in the marginal benefit of the activity
D. None of the above create an incentive to increase the amount of an activity.
A
44
Economics is primarily the study of ________.
A. the problems related to the existence and evolution of society
B. the state, nation, government, and politics and policies of governments
C. how agents choose to allocate scarce resources and how these choices affect society
D. the mental functions and behavior of individuals and groups
C
45
The quantity supplied of a good is ________.
A. inversely related to the price of the good
B. always equal to the quantity demanded of the good
C. determined irrespective of the market price
D. the amount of the good that sellers are ready to supply at a given price
D
46
Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example?
A. Aggregation of demand behavior
B. The concept of diminishing marginal benefit
C. The Law of Equi-Marginal Utility
D. The Law of Increasing Willingness to Pay
B
47
Which of the following factors is expected to cause the demand curve for coffee to shift to the right?
A. An increase in the supply of coffee due to better weather
B. A higher personal tax on the income of all consumers
C. A higher tax on the sale of tea, a substitute for coffee
D. A fall in the manufacturing cost of coffee
C
48
The figure depicts a nonlinear production possibilities curve.
Point E, a point lying inside of the curve, represents a situation that ________.
A. is currently unattainable and can be expected to remain so
B. results from inefficient use of resources or failure to use all available resources
C. has a higher opportunity cost than do points on the boundary itself
D. will be attainable only if there is economic growth
B
49
```
If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.
A. a higher price and quantity
B. a lower price and a higher quantity
C. the same price and a higher quantity
D. the same price and a lower quantity
```
D
50
If there are technological advances in the production of a good, the new equilibrium price for the good
A. increases
B. stays the same
C. decreases
D. could decrease, stay the same, or increase
C
51
Which of the following statements is true?
A. The agent with the higher opportunity cost of producing a good has the comparative advantage in producing that good.
B. An economic agent can have a comparative advantage in the production of all goods.
C. An economic agent who has the absolute advantage in producing a good also has the comparative advantage in producing that good.
D. There are mutually beneficial gains from trade if opportunity costs differ
D
52
```
The following table shows the supply schedule of bread for three sellers in the economy. Assume that these three sellers constitute the entire market.
Price ($ per loaf)
$4
$3
$2
$1
Seller 1 Quantity Supplied
15
12
6
2
Seller 2 Quantity Supplied
```
```
15
9
6
Seller 3 Quantity Supplied
40
```
```
24
11
Refer to the table above. If the market supply of bread at a price of $4 per loaf is 75 loaves, Seller 2's supply is ________ loaves.
A. 30
B. 20
C. 55
D. 35
```
B
53
Scenario: Yasmin and Zeek are lawyers working at V, W, and X LLP. Yasmin works 48 hours a week, and Zeek also works 48 hours a week. They handle two types of cases, intellectual property (IP) cases and corporate fraud (CF) cases. It takes Yasmin 6 hours to handle each IP case and 4 hours to handle each CF case. Zeek can finish an IP case in 3 hours and a CF case in 6 hours.
```
If Yasmin spent all her time on CF cases, how many CF cases can she finish?
A. 16
B. 8
C. 12
D. 4
```
C
54
Scenario: Suppose that the government imposes a price control on gasoline where the legal price is set at $1.50 per gallon while the equilibrium price would be $2.25. A shortage ensues. Worried that you may not have enough gas to commute to school and do errands, you get up before dawn to go to a gas station to fill up the tank. But you find yourself waiting in a long line. Fortunately, the station did not run out of gas before your turn came up, and you were happy to drive away with a full tank.
```
Refer to the scenario above. For the last gallon of gas that the seller is willing to produce at $1.50, the consumers are willing to pay ________.
A. less than $1.50
B. more than $2.25
C. more than $1.50 but less than $2.25
D. exactly $1.50
```
B
55
If an economy is operating at a point inside the production possibilities frontier, then
A. economic policy must retard further growth of the economy.
B. the PPF curve will shift inward.
C. society's resources are being used to produce too many consumer goods.
D. society's resources are being inefficiently utilized.
D
56
The production possibilities frontier separates ________.
A. the types of goods that can be attained from those that can't be attained
B. the quantities of goods and services that can be produced from those that cannot be produced
C. the combinations of goods that people value and those that they don't
D. the goods and services that people want from those that they do not want
B
57
Scenario: Suppose that professors pay their teaching assistants $10 an hour to grade papers for their classes, and then the professors sell the graded papers back to the students in their classes for $.75 a paper. The following table shows the number of papers graded in a given number of hours.
```
Hours of Labor
1
2
3
4
5
6
7
Number of Papers Graded
40
75
105
130
142
149
154
```
```
What is the value of the marginal productivity of labor of the fifth hour of labor?
A. $9.00
B. $10.50
C. $15.50
D. $5.25
```
A
58
Which of the following transactions will be included in the calculation of GDP using the expenditure method?
A. The purchase of a private jet by the CEO of a company
B. The sale of a used car by a consumer
C. The purchase of a treasury bond by an investor
D. The payment made to a construction worker
A
59
```
The following table shows economic data for two countries.
Country A
Country B
Currency used
Rupee
Yen
Currency exchange to U.S. $
1 rupee = $0.85
1 yen = $1.05
Population
250 million
250 million
Size of workforce
200 million
180 million
GDP
10 trillion rupee
10 trillion yen
PPP conversion
$1 per 0.80 rupee
$1 per 1.10 yen
```
GDP per capita is higher in which country?
A. Country A
B. Country B
C. GDP per capita in Country A is equal to the GDP per capita in Country B
D. Cannot determine with the information given above
B
60
Scenario: Infi Corp. is a leading manufacturer of smart phones. Every year, customers spend $31 billion on smart phones manufactured by Infi Corp. A leading retailer generates $10 billion worth of total sales, while the remaining is generated directly from consumers. The retailer pays 70 percent of its revenue to Infi Corp., and Infi Corp. pays $19 billion to its suppliers.
Infi Corp. adds a value of ________ to the production process.
A. $31 billion
B. $12 billion
C. $9 billion
D. $21 billion
C
61
```
If the number of employed workers in an economy is 8 million, the number of potential workers in the economy is 12 million, and the number of adults not in the labor force is 1 million, the number of unemployed people in the economy will equal ________.
A. 7 million
B. 5 million
C. 3 million
D. 1 million
```
C
62
```
Item - Dollars
Personal consumption expenditure - 1500
Gross private domestic investment - 355
Government expenditure on goods and services - 590
Exports of goods and services - 70
Imports of goods and services - 50
Depreciation - 200
Indirect business taxes - 75
```
```
Based on the data in the table, gross domestic product equals
A. $2,840.
B. $2,750.
C. $2,465.
D. $2,190.
```
C
63
What will happen to the demand curve for tea workers if the price of tea increases, assuming all else equal?
A. There will be an upward movement along the demand curve for tea workers.
B. There will be a left shift of the demand curve for tea workers.
C. There will be a downward movement along the demand curve for tea workers.
D. There will be a right shift of the demand curve for tea workers.
D
64
Which of the following will result in an upward shift of the aggregate production function?
A. An increase in the number of educated people in the economy
B. An increase in productivity due to the discovery of an advanced technology
C. An increase in the aggregate price level in the economy
D. An increase in the rate of taxation in the economy
B
65
```
If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was
A. 22.5 percent.
B. 18.0 percent.
C. 2.5 percent.
D. 1.8 percent.
```
D
66
In a graph that measures output in the yaxis and the efficiency units of labor in the xaxis, which of the following causes an upward movement along the aggregate production function?
A. An improvement in technology
B. A decrease in the physical capital stock
C. An increase in the total efficiency units of labor
D. A decrease in the productivity of workers
C
67
```
Which of the following is omitted in the calculation of GDP?
A. Physical capital depreciation
B. Export of goods
C. Pension paid to retired workers
D. Interest paid on bank deposits
```
A
68
```
Which type of unemployment increases during a recession?
A. structural unemployment
B. the natural unemployment rate
C. frictional unemployment
D. cyclical unemployment
```
D
69
Assume that a shift in consumer preference causes the demand for a certain type of labor to shift downward. Assuming that there is downward wage rigidity, how will the wage rate and the quantity of labor demanded change?
A. The wage rate will remain
the same, and the quantity of labor demanded will increase.
B. The wage rate will remain the same, and the quantity of labor demanded will decrease.
C. The wage rate will decrease, and the quantity of labor demanded will decrease.
D. The wage rate will increase, and the quantity of labor demanded will increase.
B
70
```
Many economists believe that ________ is useful to stimulate the economy in the short run by cutting real wages and real interest rates.
A. negative inflation
B. modest inflation
C. zero inflation
D. hyperinflation
```
B
71
What will happen to the demand curve for workers in steel mills if some technology that increases their productivity is introduced, assuming all else equal?
A. There will be an upward movement along the demand curve for the workers.
B. There will be a downward movement along the demand curve for the workers.
C. There will be a right shift of the demand curve for the workers.
D. There will be a left shift of the demand curve for the workers.
C
72
The following table contains prices and quantities for the three goods produced in the country of Linfieldia.
```
Year
2014
2015
2015
Price of a Notebook
$2.00
$2.50
$3.00
Quantity of Notebooks
80
75
90
Price of a Thesis
$830
$780
$1,500
Quantity of
Theses
6
8
3
Price of a Doughnut
$0.50
$1.00
$1.00
Quantity of Doughnuts
400
400
350
```
```
Assuming 2015 is the base year, what is the GDP deflator for 2014?
A. 99
B. 93
C. 96
D. 101
```
D
73
The country described in the table produces and consumes only three goods: energy drinks, pizza, and t-shirts. The quantity produced and price of each good in 2016 and 2017 are provided.
```
2016 2017
Good Q/P Q/P
t-shirts 150/$22 170/$22
energy
drinks 600/$1.50 600/$2
pizza 1200/$2.25 1100/$3
```
```
Assuming that 2016 is the base year, by what percentage did real GDP grow between 2016 and 2017?
A. 3.1 percent
B. 2.1 percent
C. 2.6 percent
D. 3.6 percent
```
A
74
Exponential growth implies that ________.
A. relatively large differences in growth rates will translate into small differences in the level of a quantity after many years of growing
B. relatively small differences in growth rates will translate into large differences in the level of a quantity after many years of growing
C. growth rates will alternate between positive and negative values in every consecutive time period
D. growth rates can only be positive
B
75
```
If Dell buys a computer from a foreign producer for $500 and sells it to Best Buy for $800, who then sells it to a consumer for $1,200, what is Dell's value added, Best Buy's value added, and the computer's contribution to GDP?
A. $800, $1,200, and $400
B. $300, $700, and $1,000
C. $300, $400, and $1,200
D. $300, $400, and $700
```
D
76
Gross domestic product
A. is generally less than federal expenditure in any time period.
B. measures the value of labor payments generated in an economy in a given time period.
C. includes all the goods and none of the services produced in an economy in a given time period.
D. measures the value of the aggregate production of goods and services in a country during a given time period.
D
77
Which of the following explains why frictional unemployment exists in an economy?
A. Job search is a supply-side phenomenon in the labor market, and firms make no attempts to advertise for the vacancies they have.
B. Most workers shirk at work.
C. It takes time for an unemployed worker to find a firm with a well-matched job vacancy.
D. Unemployment benefits encourage workers not to look for jobs.
C
78
Which of the following statements correctly differentiates between unemployed workers and discouraged workers?
A. Unemployed workers are counted in the labor force, but discouraged workers are excluded from the labor force.
B. Unemployed workers do not have a paid job, while discouraged workers have a paid job.
C. Unemployed workers consist of skilled workers who have been laid off, while discouraged workers refer to the unskilled workers who have lost their jobs.
D. The unemployment benefits received by unemployed workers are not capped, while the unemployment benefits received by discouraged workers are capped at a maximum.
A
79
The following table contains statistics for the country of Gregorville in 2017, a country in which all must either attend school, be available for work, or be retired.
Population - 140,000
Students - 28,000
Retirees - 36,000
Employed - 62,000
Jobless - 14,000
Jobless and actively looked for work in the prior 4 weeks - 10,000
```
What is the labor force?
A. 72,000
B. 62,000
C. 76,000
D. Not enough information provided
```
A
80
```
The price of a house in Year 1 was $50,000. If the Consumer Price Index is 101 for Year 1 and 202 for Year 2, the value of the house in Year 2 is ________.
A. $100,000
B. $75,000
C. $150,000
D. $55,000
```
A
81
A retired worker receives a pension that is not indexed to inflation. Which of the following will happen if the rate of inflation rises?
A. The retiree's purchasing power will fall.
B. The retiree's purchasing power will increase.
C. The retiree will be better off.
D. The shareholders of the firm she worked in will lose.
A
82
If unemployment equals the natural unemployment rate, then there
A. is zero unemployment.
B. are no job openings existing at the time.
C. is less than full employment.
D. is only frictional or structural unemployment.
D
83
2016 2017
Item Quantity Price Price
Movie tickets 4 $5.00 $7.50
Popcorn Bags 2 $3.00 $3.00
Drinks 4 $1.00 $1.50
```
The information in the table gives the 2016 reference base period CPI basket and prices used to construct the CPI for a small nation. It also has the 2017 prices. What is the value of the CPI for 2017?
A. 140
B. 75
C. 133
D. 100
```
A
84
California's GDP per capita is $60,000, while Nevada's GDP per capita is $40,000. If both grow at 2 percent per year, how long will it take for the two states to have the same GDP per capita?
A. 50 years
B. 25 years
C. 35 years
D. They will never have the same GDP per capita
D
85
The circular flow shows that
A. aggregate production equals aggregate expenditure.
B. aggregate expenditure is less than aggregate income.
C. GDP equals aggregate income.
D. Both answers A and C are correct.
D
86
What can government policies do about the business cycle?
A. Government policies can completely negate the business cycle.
B. Government policies can eliminate expansions but not recessions.
C. Government policies cannot affect the business cycle at all.
D. Government policies can possibly reduce the severity of the business cycle.
D
87
```
Another common term for a recession is a(n) ________.
A. expansion
B. peak
C. boom
D. contraction
```
D
88
```
Which of the following rises during a recession?
A. Unemployment
B. Consumption
C. GDP
D. Investment
```
A
89
A country's marginal product of labor falls during winter due to excessive cold. Which of the following is likely to happen in this case, assuming all else equal?
A. The country's labor demand curve will shift to the left in winter.
B. There will be an upward movement along the labor demand curve.
C. There will be a downward movement along the labor demand curve.
D. The country's labor demand curve will shift to the right in winter.
A
90
```
Which of the following will happen if aggregate consumption in an economy falls?
A. Mortgage defaults will fall.
B. Firms' revenues will fall.
C. Labor supply will fall.
D. Asset prices will rise.
```
B
91
Which of the following statements is true?
A. Countercyclical fiscal policy slows down the growth rate of an economy during an expansion by shifting the labor supply curve to the left.
B. Countercyclical fiscal policy slows down the growth rate of an economy during an expansion by shifting the labor supply curve to the right.
C. Countercyclical fiscal policy slows down the growth rate of an economy during an expansion by shifting the labor demand curve to the right.
D. Countercyclical fiscal policy slows down the growth rate of an economy during an expansion by shifting the labor demand curve to the left.
D
92
If the value of a government taxation multiplier is 1.8, which of the following is likely to be true if all other variables remain unchanged?
A. A $1 reduction in taxation increases GDP by $1.80.
B. A $1 increase in taxation increases GDP by $1.80.
C. A $1.80 increase in taxation increases GDP by $1.80.
D. A $1.80 reduction in taxation increases GDP by $1.80.
A
93
```
Expansionary fiscal policy uses ________ government spending and ________ taxes to increase aggregate economic activity.
A. higher; higher
B. lower; lower
C. lower; higher
D. higher; lower
```
D
94
Which of the following is an example of an automatic stabilizer during a recession?
A. An increase in interest rates due to a decrease in investment
B. A decrease in inflation due to an increase in consumption
C. An increase in money supply due to a decrease in bank deposits
D. A decrease in tax revenue due to an increase in unemployment
D
95
```
A decrease in government expenditures leads to a(n) ________ in the growth rate of real GDP and a ________ shift of the labor demand curve.
A. decrease; right
B. increase; right
C. increase; left
D. decrease; left
```
D
96
A countercyclical fiscal policy is conducted by ________ with the overall goal of ________.
A. the government; increasing economic activity
B. the government; reducing economic fluctuations
C. the central bank; increasing economic activity
D. the central bank; reducing economic fluctuations
B
97
Which of the following changes will cause a downward movement along the demand curve for reserves?
A. A decrease in the deposits held by banks
B. A decrease in the federal funds rate
C. An increase in the federal funds rate
D. An increase in the deposits held by banks
B
98
If the Fed wants to raise the federal funds rate, what must they do?
Sell bonds to a private bank
99
In the United States, the key policy lever of the Federal Reserve is ________.
A. allowing or disallowing interbank transfers
B. the manipulation of the quantity of bank reserves
C. changing the reserve requirement
D. conducting stress tests on banks
B
100
```
The ________ is the interest rate that banks charge each other for overnight loans.
A. spot interest rate
B. discount window interest rate
C. subsidized banking interest rate
D. federal funds rate
```
D
101
```
Suppose that inflation were 2 percent and unemployment were 10 percent. Which of the elements of the Fed's dual mandate would it be failing?
A. Price stability
B. Maximum (sustainable) employment
C. Both
D. Neither
```
B
102
```
The Federal Reserve attempts to keep inflation ________ and ________.
A. low and unpredictable
B. high and predictable
C. low and predictable
D. high and unpredictable
```
C
103
```
According to the quantity theory of money, when the gap between the growth rate of money supply and the growth rate of real GDP widens, ________.
A. the inflation rate decreases
B. real interest rates increase
C. nominal interest rates decrease
D. the inflation rate increases
```
D
104
```
Deposits made by the public into a savings account are referred to as ________.
A. current deposits
B. overdrafts
C. demand deposits
D. stockholders' equity
```
C
105
```
Anna, Barry, and Clara grew up together in Michigan. After college, they each went overseas to countries that had different currencies. They had a group chat in which they were comparing costs of living. So that they could understand one another, they each converted their costs into U.S. dollars. What purpose did the U.S. dollar serve in their conversation?
A. Store of value
B. Medium of exchange
C. Loanable fund
D. Unit of account
```
D
106
Which of the following equations is correct?
A. Real interest rate = Nominal interest rate/Inflation rate
B. Real interest rate = Nominal interest rate x Inflation rate
C. Real interest rate = Nominal interest rate + Inflation rate
D. Real interest rate = Nominal interest rate - Inflation rate
D
107
```
If an individual borrows $100 and pays back $100 after a year to settle his loan, it implies that the rate of interest is ________.
A. 10 percent
B. 1 percent
C. 100 percent
D. 0 percent
```
D
108
Which of the following equations is correct?
A. Stockholders' equity/Total liabilities = Total assets
B. Stockholders' equity - Total liabilities = Total assets
C. Stockholders' equity + Total liabilities = Total assets
D. Stockholders' equity x Total liabilities = Total assets
C
