Macroeconomics (OFFICIAL) Flashcards
(121 cards)
1
Q
The calculation of GDP does not account for the following:
a. Value of goods and services
b. ??
c. ??
d. Value of the investment
e. Both b and c
A
e. Both b and c
2
Q
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
A
a. Have more greater college graduates
3
Q
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
A
e. all of the above
4
Q
If the government created a new tax credit to encourage businesses to build more factories
a. interest rates could either increase or decrease.
b. the demand for loanable funds would decrease.
c. the supply of loanable funds would increase.
d. the demand for loanable funds would increase.
e. interest rates would fall due to a decrease in total amount borrowed.
A
d. the demand for loanable funds would increase.
5
Q
In economics, “real interest rate” can best be described as
On the EXAM
A
the nominal interest rate adjusted for expected inflation
6
Q
How big is the labor force?
Employed 800
unemployed 200
not in labor force 50
A
1000 (employed + unemployed) exclude labor force
7
Q
Which of the following is not a important determinant of the quantity of money demand
a. availability of a ATM machine (wrong)
b. price level
c. interest rate
d. value of money
e. all of the above
A
d. value of money
8
Q
long question about BRAZIL, nominal rate = 18, expected interest = 12
A
(Interest rate = Nominal Rate – Inflation)
(18 - 12 = 6)
9
Q
What is the Formula for Interest Rate?
A
(Interest rate = Nominal Rate – Inflation)
10
Q
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
d. a and b are incorrect (wrong)
e. b and c are incorrect
A
a. during a period of inflation, prices are always rising
11
Q
According to the multiplier effect, a dollar increase in government spending will lead to
A. A multiple dollar increase in the money supply
B. An increase in aggregate demand
C. A decrease in aggregate demand
D A multiple dollar increase in the aggregate demand
E. None of the above
A
B. An increase in aggregate demand
12
Q
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
A
a. Increase in government purchases
13
Q
f you take investment by US residents in other countries and you subtract investment by foreign resident in the US, you will find
A
Net foreign Investment
14
Q
Cyclical unemployment is best defined as:
a. deviation of unemployment from the natural rate
b. unemployment dued to individuals searching for new jobs
c. chronic unemployment dued 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
A
d. unemployment associated with inefficiency in capital markets
15
Q
Cyclical unemployment is:
A
Inefficiency in capital markets
16
Q
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
A
55,000/110 = 500
500 x 100 = 50,000
17
Q
Government can increase Long-Run economy growth by encouraging:
A. Conservation of resources B. Consumption
C. Spending
D. Saving and Investing E. None
(On the EXAM)
A
D. Saving and Investing
18
Q
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.
(On the EXAM)
A
A. Make economic development more likely
19
Q
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
A
C. There will be excess supply in loan able funds market
20
Q
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.
A
B. Consumers substitute towards goods that have become relatively less expense.
21
Q
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.
A
A. The catch-up-effect
22
Q
To find the Real interest Rate (Formula)
A
Take the nominal interest rate - inflation rate
23
Q
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.
A
B. National Saving
24
Q
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.
A
D. Unemployment due to individuals search for new job
25
Frictional unemployment
moving from one job to another.
26
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
```
B. Increase the discount rate
27
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.
```
(On the EXAM)
C. 12%
28
The main problem with active fiscal policy is that?
A. Changes in government’s spending have no effect on Aggregate Demand in short-run. (WA)
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.
(On the EXAM)
E. It is difficult to time fiscal changes correctly.
29
A country tends to grow faster when?
A. Greater proportion of its work force graduate from college.
B. It trades less with the rest of the world.
C. The government restricts direct foreign investment into others.
D. Saving and investing decrease.
E. The Stock of fiscal capital is held constant.
A. Greater proportion of its work force graduate from college.
30
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
```
B. Production function
31
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
E. All
32
Relationship between saving investment and net foreign investments:
A. S + I
B. I – S
C. S – I
D. S/I
(On the EXAM)
C. S – I
33
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
C. Tools of fiscal policy that responds to change in the economy without any action by politician.
34
Problems in measuring the cost of living include
A. Substitution bias
B. The introd of new goods
C. Unmeasured quality changes
D. All
E. None
D. All
35
The required Reserve ratio 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
```
D. 20,000
5,000/.25 = 20,000
36
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
A. Increase in government purchases
37
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
```
A. Interest rates will fall
38
```
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.
```
A. 5
(Equation)
MV = PY V = (PY/M)
```
V = (5*2)/2
V = 10/2
V = 5
```
39
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
```
B. 8 trillion
(Equation)
MV = PY Y= MV/P
```
Y = 10(4)/5
Y = 40/5
Y = 8
```
40
MV = PY
```
M = Money Supply
P = Price Level
Y = Real GDP
V = Velocity of money
```
41
Decrease the money supply the Fed would?
```
A. Buy government’s bond
B. Increase the discount rate
C. Decrease the Reserve requirements
D. Any of the above
E. None
```
B. Increase the discount rate
42
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.
D. Unskilled worker can’t get hired because the minimum wage is too high.
43
structural unemployment:
Some industries are declining
44
According 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
C. Interest rates will decrease
45
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
```
E. B & C
46
Decrease of price level of consumer spending:
A. Shift in the aggregate demand curve.
B. Negative slope of aggregate demand curve
C. Shift in Short-Run aggregate supply curve
D. The positive slope of the short – run aggregate supply curve
E. The positive slope of the aggregate demand curve.
B. Negative slope of aggregate demand curve
47
```
Which of the following will increase the long – run growth?
A. Rate is U.S. Real GDP per person
B. Bailout unsecured comp
C. More efficient
D. A, B and C
E. A and C will increase the...
```
A. Rate is U.S. Real GDP per person
48
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
```
A. Net domestic product.
49
How to find the Net domestic Product? (Formula)
Net domestic Product = GDP - Depreciation
50
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.
```
A. Physical capital
51
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
```
E. All
52
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
```
A. Interest Rates are above equilibrium.
53
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
```
D. 4
54
How big is the labor force?
# of employment 800
# of unemployment 200
Not in labor force 50
```
A. 250
B. 800
C. 1000
D. 1050
E. 850
```
C. 1000
| employment + unemployment = Labor force
55
According to the theory of liquidity preferences, an increase in the rate of growth of Money Supply will cause which of the following?
```
A. Interest Rates will fall
B. Interest Rates will raise
C. Nominal wages will fall
D. Nominal GDP will stay the same
E. Real GDP will fall
```
A. Interest Rates will fall
56
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
A. Increasing the Money Supply faster than usual during recession.
57
Which of the following factors effect a country’s net foreign investments?
A. Real interest rates paid on foreign assets
B. Real interest rates paid on domestic assets
C. Government policies that effect foreign ownership
D. All
E. None.
D. All
58
a person who was laid off during a recession:
Cyclical
59
18% nominal rate expected inflation rate at 12% what is real interest rate?
(18 - 12 = 6)
60
What is the labor force?
Employed 1000
Unemployed 500
Not in labor force 600
(1000 + 500 = 1500)
61
88. Michael Jordan is currently worth 25,000 and the CPI is 108:
```
25000/108 = 231.48
231.48*100 = 23148
```
62
What does each one stand for?
```
Y =
C =
I =
G =
Nx =
```
```
Y = GDP
C = Consumption
I = Investment
G = Government
Nx = Imports
```
63
Suppose that aggregate consumption is $1,200,000, aggregate investment is $300,000, government spending is $200,000, the value of exports is $200,000, and the value of imports is $100,000. What is the value of Gross Domestic Product (GDP)?
a. $1,800,000
b. $1,700,000
c. $1,600,000
d. $2,000,000
e. none of the above
```
Y = C + I + G + Nx
C = 1,200,000
I = 300,000
G = 200,000
NX = 100,000
```
= $1,800,000
64
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.
e. consumption tends to catch up with savings.
c. poor countries with small capital stocks will grow faster that wealthy countries when investment increases.
65
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.
b. investment in human capital.
66
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.
e. Items a and c will increase long run growth rates in the US, but item b will not.
c. A more efficiently designed patent system.
67
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.
b. Tax revenue minus government spending.
68
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
b. unemployed
69
According to the following information, what is the unemployment rate?
Number of Employed: 20,000
Number of Unemployed: 1,000
Not in the Labor Force: 4,000
a. 5.0%
b. 4.8%
c. 3.7%
d. 20.0%
e. none of the above
b. 4.8%
Unemployment/ Employment + Unemployment = unemployment rate
1,000 / 1,000 + 20,000 = 4.8%
70
If the reserve ratio is 20 percent and a bank receives a new checkable deposit of $100, this bank:
a. must increase required reserves by $20.
b. will initially see its total reserves increase by $200.
c. will be able to make new loans up to a maximum of $20.
d. will be allowed to make new loans of up to $100.
e. all of the above are true.
a. must increase required reserves by $20.
100*0.20 = 20
71
Suppose that the country of Argentina has a 6% real interest rate and an expected inflation rate of 10%. Which of the following is the best estimate of the nominal interest rate in the country?
a. 16%
b. 8%
c. 4%
d. 18%
e. none of the above
a. 16%
72
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.
(On the EXAM)
c. The real interest rate is the nominal interest rate minus the expected inflation rate.
73
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.
(On the EXAM)
d. A decrease in both the price level and real output.
74
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
e. the catch-up effect
a. the Keynesian multiplier
75
Which of the following is an automatic stabilizer?
a. FDIC insurance
b. The income tax system.
c. An open market operation.
d. Defense spending.
e. none of the above.
c. An open market operation.
76
Net exports measure an imbalance between a country’s
a. exports and its imports.
b. sale of domestic assets abroad and buying of foreign assets.
c. income and expenditure.
d. savings and consumption.
e. all of the above.
a. exports and its imports.
77
All of the following would cause a leftward shift in the short-run aggregate-supply curve except
a. a substantial drop in employment caused by a large hike in the legal minimum wage.
b. a natural disaster that leads to a significant decline in the the economy’s physical capital stock.
c. the removal of government regulations, leading to a large increase in oil production.
d. the imposition of foreign-trade barriers that substantially reduce the level of mutually beneficial trade.
e. a decrease in the level of immigration.
c. the removal of government regulations, leading to a large increase in oil production.
78
The Real GDP of a country is:
a. the total income earned bya 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.
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.
79
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
e. All of these are examples of input growth
a. immigration
80
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.
c. low growth rates.
81
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
a. stable private property rights
82
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%
e. none of the above
a. 9%
| Real Interest Rate=Nominal Interest Rate – Inflation
83
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
b. Frictional Unemployment
84
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.
c. If the Money Supply and the price level are constant, then real GDP is likely to rise.
85
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.
c. A lower price level causes the real exchange rate to depreciate, which encourages spending on net exports.
86
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.
b. Active fiscal policy.
87
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.
c. the Federal Reserve.
88
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.
b. occurs when imports are greater than exports.
89
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
d. all of the above
90
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
Unsure
91
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.
a. the quantity of inputs used in production and the quantity of output.
92
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.
(On the EXAM)
b. encouraging education and training of labor.
93
Which of the following institutions is not identified by economists as a major determinant of long run-growth?
a. A legal system that efficiently enforces property rights.
b. A trading system that allows people to buy and sell products with whomever they please.
c. Government programs that reward productive behavior by individuals.
d. Democratic government.
e. All of the above are major determinants of long-run growth.
e. All of the above are major determinants of long-run growth.
94
According to the loanable funds framework, if the government runs a budget deficit due to an increase in spending:
a. Interest rates will increase.
b. Interest rates will decrease.
c. The supply of loanable funds will increase.
d. Both (a) and (c) are true.
e. None of the above are true.
d. Both (a) and (c) are true.
95
If real interest rates are too high:
a. there will be excess demand in the loanable funds market.
b. nominal interest rates will have to rise.
c. there will be excess supply in the loanable funds market.
d. inflation must be increasing.
e. the GDP deflator hasn’t been applied yet.
c. there will be excess supply in the loanable funds market.
96
According to the following information, what is the unemployment rate?
Number of Employed: 800
Number of Unemployed: 200
Not in the Labor Force: 50
a. 6%
b. 19%
c. 20%
d. 28%
e. none of the above
c. 20%
200/1,000 = .20
97
According to the following information, what is the unemployment rate?
Number of Employed: 1800
Number of Unemployed: 200
Not in the Labor Force: 600
a. 10%
b. 12%
c. 14%
d. 20%
a. 10%
| 200/2,000 = 10
98
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.
b. the amount of reserves banks must hold against deposits.
99
Economists sometimes refer to an “inflation tax”. Which of the following statements best describes what they have in mind?
a. Many tax laws cause great inefficiency in the presence of inflation.
b. Many tax policies cause substantial redistribution of income during inflationary periods.
c. When the government prints money to pay for its expenses, inflation occurs, and this causes a reduction in wealth for everybody who holds on to money.
d. When inflation occurs, nominal interest rates rise, which causes an enormous transfer of wealth between borrowers and lenders.
e. None of the above.
a. Many tax laws cause great inefficiency in the presence of inflation.
100
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 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.
c. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates rise.
101
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.
e. none of the above.
a. the quantity of goods and services that households, firms, and the government want to buy at each price level.
102
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.
a. create money faster during recessions and more slowly during booms.
103
According to the theory of liquidity preference, an increase in the rate of growth of the money supply will cause which of the following?
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.
a. Interest rates will fall.
104
A person who worked 20 hours per week while going to school would be categorized as:
a. employed
b. unemployed
c. not in the labor force
d. marginally unemployed
e. labor impaired
a. employed
105
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%
d. 5%
106
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.
b. (Nominal GDP x 100)/(Real GDP).
107
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.
e. None of the above.
108
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
c. not in the labor force
109
Which of the following statements is consistent with the theory of liquidity preference?
a. When the Federal Reserve Board of Govenors 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.
a. When the Federal Reserve Board of Govenors increases the money supply faster than usual, interest rates fall.
110
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.
b purchases government bonds from the public, thereby increasing the money supply.
111
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.
c. a war that reduces the economy’s physical capital stock.
112
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
d. An increase in the earned income tax credit
113
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.
e. the positive slope of the short-run aggregate-supply curve.
114
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.
e. When the money supply is increased, nominal wage rates will rise.
115
If the reserve ratio is 25 percent, the money multiplier is
a. 2.
b. 4.
c. 5.
d. 8.
e. 25.
b. 4.
116
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”.
e. all but “c”.
117
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.
a. investment in human capital increases.
118
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.
a. increasing the money supply.
119
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
c. $1,400,000
120
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.
a. net foreign investment is generally positive.
121
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
4.8%
(10,000 + 500 = 10,500
(500 / 10,500 = 4.8%)
