Q&A Hero

Q: In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services whenA) investment is zero. B) saving is zero.C) people save some of their income.D) people barter rather than use money in making exchanges.

Q: The total of all planned expenditures in the entire economy is the definition ofA) aggregate supply. B) production possibilities curve.C) aggregate demand. D) net domestic product.

Q: Higher saving rates mean higher future growth rates becauseA) the interest earned from savings gives you more wealth.B) the banks have more money to distribute to their shareholders.C) saving contributes to less investment, which yields a larger capital stock. D) saving contributes to more investment, which yields a larger capital stock.

Q: Disposable personal income is equal toA) national income minus personal income taxes. B) personal income plus transfer payments.C) Gross Domestic Product (GDP) minus depreciation.D) personal income minus personal income tax payments.

Q: The two sectors of the economy in the simple circular flow model areA) the employed and the unemployed. B) foreign markets and domestic markets. C) households and businesses. D) the private sector and the public sector.

Q: Full employment in the United States today A) means a 100% employment rate. B) means 0% unemployment for 6 months. C) means about a 95% employment rate. D) means that the cyclical unemployment rate is about 5 %.

Q: What did Milton Friedman and E.S. Phelps argue with respect to the Phillips Curve?A) The Phillips Curve could accurately guide activist policy makers over the long run.B) The inverse relationship between unemployment and inflation only holds in the long run. In the short run, unemployment and inflation are positively related.C) Economic participants would soon understand activist policymakersʹ strategy and revise their expectations, making discretionary efforts to fine -tune the economy ineffective.D) The inflation rate will consistently be 2 percentage points below the unemployment rate.

Q: policy making that is carried out in response to a rule isA) active policy making. B) passive policy making.C) restrictive policy making. D) determined policy making.

Q: If the Fed sells U.S. government securities , the A) money supply increases, and the money supply curve shifts to the right. B) money supply increases, and the money supply curve shifts to the left. C) money supply decreases, and the money supply curve shifts to the right. D) money supply decreases, and the money supply curve shifts to the left.

Q: When the Fed buys a U.S. bond in the open marketA) its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.B) total reserves increase by the amount of the purchase but the money supply stays the same.C) its action expands total reserves and the money supply.D) its action contracts total reserves and the money supply.

Q: The money supply in the United States is backed byA) faith. B) gold. C) silver. D) platinum.

Q: A government budget deficit occurs during a budget year whenA) tax revenues > government spending. B) tax revenues = government spending. C) tax revenues < government spending.D) tax revenues + government spending = personal consumption.

Q: The government might engage in expansionary fiscal policy if it wanted toA) reduce the price level. B) reduce real GDP.C) shift the aggregate demand curve to the left. D) reduce the level of unemployment.

Q: The marginal propensity to save (MPS) is A) the rate at which real savings changes over time. B) the percentage of real disposable income saved. C) the difference between the amounts of real disposable income consumed and saved. D) the percentage of an additional dollar of real disposable income that will go toward additional real savings.

Q: Suppose the Japanese yen increases in its value relative to the U.S. dollar. In the U.S. economy, A) the price level will increase and real GDP will fall if the increase in aggregate demand is less than the decrease in aggregate supply.B) the price level will increase and real GDP will fall if the decrease in aggregate demand is more than the increase in aggregate supply.C) the price level will fall and real GDP will increase if the increase in aggregate supply is greater than the decrease in aggregate demand.D) the price level will fall and real GDP will decrease if the decrease in aggregate demand is less than the increase in aggregate supply.

Q: Leakages in the circular flow model areA) caused by people not acting rational.B) possible when unemployment exists.C) reflected in the vertical long-run aggregate supply curve. D) caused by people saving instead of spending.

Q: Aggregate demand isA) the horizontal summation of all demand curves for a product. B) the sum of all planned expenditures for the economy.C) the total quantity of all goods sold in an economy in a year.D) the horizontal summation of all demand curves for state, local, and federal governments and business firms.

Q: In order to be able to consume more in the future, you have to consumeA) less today and save the difference. B) more today to increase supply.C) more consumer goods. D) fewer capital goods.

Q: Disposable personal income is found by takingA) personal income taxes minus personal income. B) personal income minus personal income taxes. C) personal income taxes plus personal income. D) personal income times personal income taxes.

Q: How much of each dollar spent by a consumer ultimately becomes income to someone else? A) 100 percent B) 67 percent C) It depends on how much labor was needed to produce the good the consumer buys. D) It depends on how much overhead there is in the distribution channel that delivers the good from the manufacturer to the consumer.

Q: The natural rate of unemployment isA) the long-run average rate of unemployment due to frictional and structural causes. B) the long-run average rate of unemployment due to frictional and cyclical causes.C) the long-run average rate of unemployment due to cyclical and structural causes. D) the average rate of unemployment in each decade.

Q: New Keynesians hypothesize thatA) the relationship between inflation and unemployment is exploitable in the long run. B) the relationship between inflation and unemployment is exploitable in the short run. C) there is no relationship between inflation and unemployment.D) fluctuations in output are largely caused by supply shocks.

Q: What best defines active policy making? A) taking action to offset a change in economic performance B) taking action to increase long-term economic growth C) taking action to make markets more competitive so as to improve efficiency D) taking action to make markets less competitive so as to improve equity

Q: Suppose the Fed conducts an open market sale of bonds. This monetary policy action will tend to causeA) the price of bonds to increase and the interest rate to increase. B) the price of bonds to increase and the interest rate to decrease. C) the price of bonds to decrease and the interest rate to increase. D) the price of bonds to decrease and the interest rate to decrease.

Q: The level of reserves in the banking system is determined byA) the American Banking Association. B) the Federal Open Market Committee.C) bond dealers. D) the Treasury Department.

Q: What type of intrinsic value or backing does U.S. currency have today?A) gold B) government bondsC) none D) silver

Q: Which of the following is true when a budget deficit exists?A) Government expenditures exceed tax revenues.B) Tax revenues exceed government expenditures. C) A trade surplus exists.D) Dissaving exists.

Q: In the short run, if the government attempts to increase aggregate demand, it shouldA) increase government spending and reduce taxes.B) decrease government spending and increase taxes.C) shift the long-run aggregate supply curve to the right.D) shift the short-run aggregate supply curve to the right.

Q: The marginal propensity to consume (MPC) is A) the rate at which real consumption spending changes over time. B) the percentage of real disposable income saved. C) the percentage of real disposable income consumed. D) the percentage of an additional dollar of real disposable income that will go toward additional real consumption spending.

Q: Refer to the above figure. Suppose we are at E* and the dollar weakens. Which aggregate supply curve must apply if the price level increases?A) 3 only B) 4 only C) 5 only D) 4 or 5

Q: Saving representsA) a source of funds for business investment.B) a normal part of the circular flow of income and output. C) an injection to the circular flow of income and output.D) a counter-example to Sayʹs Law that the classical economists never considered.

Q: How does aggregate demand curve (AD) differ from an individual demand curve (D)? A) AD is generally vertical while D is usually downward sloping. B) D represents the price-quantity relationship for a single good or service while AD looks at the entire economic system. C) Look for D in macroeconomic analyses and for AD in microeconomics. D) AD is generally a downward sloping curve while D usually slopes upward.

Q: An increase in a countryʹs saving rate will tend to cause which of the following in the long run?A) a reduction in per capita real GDP B) an increase in economic growthC) an increase in the unemployment rate D) an increase in the rate of inflation

Q: Which of the following will be the smallest in value?A) National income B) Net domestic productC) Personal income D) Disposable personal income

Q: Which of the following statements is NOT true about the relationship between the dollar value of total output and total income?A) The dollar value of total output equals total income because the spending of one group is the income of another.B) The dollar value of total output equals total income because profit is considered a cost of production.C) The dollar value of total output equals total income because profit is not considered a cost of production.D) The dollar value of total output equals total income because of the economic definition of profit.

Q: Full employment isA) zero unemployment.B) when the unemployment level is reduced to the goal set by Congress.C) the unemployment level when the normal friction in the economy is taken in account. D) when all adults looking for work can find full time occupation.

Q: Describe new Keynesian economics and the arguments used to support the ideas.

Q: Which one of the following is an example of passive policy making? A) introducing expansionary monetary policy to combat a recession B) introducing expansionary monetary policy to combat inflation C) introducing expansionary fiscal policy to combat a recession D) following a predetermined monetary policy rule

Q: In the above figure, if we begin at S2 and the Fed buys bonds, A) the price of bonds falls, and the interest rate rises.B) the price of bonds falls, and so does the interest rate.C) the price of bonds rises, and so does the interest rate. D) the price of bonds rises, and the interest rate falls.

Q: Open market operations areA) the buying of existing corporate securities in secondary markets by private citizens, banks and the Fed.B) the buying and selling of existing U.S. government securities in open private markets by the Fed.C) the actions of the Fed that are used to finance deficit financing by the government. D) the selling of new government securities in order to increase the money supply.

Q: Which of the following would be considered a transaction deposit?A) passbook savings account B) checking accountC) credit card account D) 401(k) retirement account

Q: Public debt is held asA) corporate bonds and common stocks of the largest companies.B) Federal Reserve Notes. C) U.S. Notes.D) Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds.

Q: Contractionary fiscal policy will most likelyA) involve cutting taxes. B) raise real GDP.C) reduce the price level.D) involve increasing government spending.

Q: The average propensity to save (APS) is A) the rate at which real savings changes over time. B) the percentage of real disposable income saved. C) the difference between the amounts of real disposable income consumed and saved. D) the percentage of additional real disposable income that will go toward real saving.

Q: Refer to the above figure. Suppose the economy is at E originally, when the dollar increases in value. Which aggregate supply curve applies if the value of real GDP increases?A) 1 B) 2 C) 4 D) 5

Q: Money illusion isA) a basic condition that all classical economists assume people have.B) when people think they are better off when their income increases even though prices have increased by the same amount.C) when people are motivated by self-interest.D) could not exist if the economy did not have competitive markets.

Q: The aggregate demand curve differs from an individual demand curve in that A) the aggregate demand curve may not slope down while an individual demand curve must always slope down. B) the aggregate demand curve looks at the entire circular flow of income and product, while an individual demand curve looks at one good, holding everything else constant. C) prices change along an individual demand curve but prices are held constant along an aggregate demand curve. D) the aggregate demand curve slopes up while an individual demand curve slopes down.

Q: Which of the following is an important factor affecting economic growth?A) the rate of saving B) exchange ratesC) the rate of interest D) the level of prices

Q: If disposable personal income (DPI) = $800 and personal income taxes = $80, then what is personal income (PI)?A) $720 B) $800C) $880 D) canʹt tell from the information provided

Q: The dollar value of final outputA) is less than total income. B) is equal to total income. C) is greater than total income. D) equals profits.

Q: Currently, economists estimate that the natural rate of unemployment in the United States is aboutA) 10 percent. B) 2 percent. C) 5 percent. D) 0 percent.

Q: What are some of the criticisms that have been levied on the World Bank and the International Monetary Fund concerning adverse selection and moral hazard?

Q: New Keynesian theory implies that which of the following reduces firmsʹ incentive to adjust their prices? A) a downward sloping aggregate demand curve B) the required reserve ratio C) menu costs D) none of the above

Q: Which of the following statements has been proposed as a benefit of passive policy making? A) Passive policy making allows for making immediate changes in response to an anticipated change in economic performance. B) Passive policy making utilizes the rational expectations hypothesis. C) When using passive policy making there is no tradeoff between price stability and unemployment. D) Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

Q: In the above figure, if we begin at S1 and the Fed sells bonds, A) the price of bonds falls, and the interest rate rises.B) the price of bonds falls, and so does the interest rate. C) the price of bonds rises, and so does the interest rate. D) the price of bonds rises, and the interest rate falls.

Q: When the Fed wants to undertake open market operations, it A) can require all commercial banks to buy from or sell to it. B) can require all member banks to buy from or sell to it.C) buys or sells securities through the trading desk at the New York Federal Reserve Bank. D) buys from or sells to the U.S. Treasury.

Q: To the extent that the value of money is less predictable, it becomesA) more acceptable as a standard of deferred payment. B) more acceptable as a unit of account.C) more acceptable as a store of value.D) less acceptable as a medium of exchange.

Q: Which of the following will NOT cause the public debt to change?A) Collection by the government of $200 billion more in taxes than it spendsB) Government budget deficit C) Government budget surplus D) Balanced budget

Q: In the short run, expansionary fiscal policy usually willA) increase the price level and increase real GDP. B) increase the price level and decrease real GDP. C) decrease the price level and increase real GDP. D) decrease the price level and decrease real GDP.

Q: The average propensity to consume (APC) isA) the rate at which real consumption spending changes over time. B) the percentage of real disposable income saved.C) the percentage of real disposable income consumed.D) the percentage of additional real disposable income that will go toward additional consumption spending.

Q: Refer to the above figure. Suppose the economy is at E. A stronger dollar leads to a lower real GDP. Which of the aggregate supply curves must be the relevant curve after the change in the value of the dollar?A) 1 B) 2 C) 4 D) 5

Q: Joeʹs increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joeʹs behavior is consistent withA) Sayʹs Law. B) the classical model. C) a vertical aggregate supply curve. D) money illusion.

Q: When the U.S. price level falls, the open economy effect indicates thatA) U.S. imports will rise.B) U.S. residents will move away from domestic goods and buy more foreign goods. C) U.S. exports will increase.D) foreigners will buy fewer U.S. goods.

Q: Regarding the role of saving in economic growth, studies indicate that A) there is a positive relationship between economic growth and saving. B) there is no relationship between economic growth and saving. C) there is a negative relationship between economic growth and saving. D) there is both a positive and a negative relationship between economic growth and saving.

Q: The amount of income received by households prior to the payment of personal income taxes is calledA) disposable wages. B) personal income.C) national income. D) net domestic product.

Q: Households receive a total income of $5 million. Of this, $3.5 million are wages received for labor services, $1 million are rental payments, and $250,000 are interest payments received. What are the costs of production and profits equal to respectively?A) $5 million; $500,000 B) $5 million; $250,000C) $4.75 million; $250,000 D) $4.75 million; 0

Q: Full employment is not zero unemployment becauseA) there are statistical errors when determining the unemployment rate that cannot be overcome.B) there is ʺnormalʺ friction in the economy made up of those workers who are between jobs and those new entrants to the labor force.C) there are undocumented workers in the economy who are not counted by the Bureau of Labor Statistics.D) government workers are not counted in the labor force.

Q: Discuss why the World Bank has been criticized for making loans to nations that can attract private funds.

Q: According to some New Keynesian theories, one possible rationale for active policy making isA) flexible prices.B) sluggish adjustment of the price level in response to changes in aggregate demandC) people are not rational and so do not react to incentives. D) growing competition in U.S. product markets.

Q: The Federal Reserve is anticipating a contractionary period in the economy. The Fed decides to engage in open market operations to stimulate the economy. This action is A) active policy making. B) passive policy making. C) the monetary rule. D) Phillips policy making.

Q: The Federal Open Market Committee has responsibility forA) appointing members to the Board of Governors of the Federal Reserve system. B) printing money.C) issuing orders to buy or sell government securities for the Fed. D) advising the Treasury Department on monetary policy.

Q: Which one of the following statements is true?A) Not all forms of currency are accepted equally well by the public as a medium of exchange.B) Checkable and debitable account balances are not money, but currency is.C) Checkable and debitable accounts are considered money by law in only 15 states. D) The value of the dollar rises along with the increases in the consumer price index.

Q: Which of the following statements is true about the difference between the public debt and the government budget deficit? A) The public debt always increases while the government budget deficit may increase or decrease. B) The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or a government budget surplus. C) The public debt is a flow measure and the government budget deficit is not a flow measure. D) There is no relationship between the public debt and the government budget deficit since one is a stock measure and the other is a flow measure.

Q: An example of expansionary fiscal policy could beA) to increase taxes. B) to reduce taxes.C) to reduce government spending. D) to reduce interest rates.

Q: In the consumption function model, the 45-degree line represents whereA) the real disposable income is equal to zero.B) planned real saving is equal to zero.C) planned real consumption spending is equal to zero. D) planned real saving is greater than actual real savings.

Q: Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that A) the increase in aggregate demand was greater than the decrease in aggregate supply. B) the decrease in aggregate demand was less than the increase in aggregate supply.C) the decrease in aggregate demand was more than the increase in aggregate supply.D) the increase in aggregate demand was less than the decrease in aggregate supply.

Q: A consumer who buys more coffee when the price of coffee falls 5 percent, while all other prices fell 5 percent too, isA) suffering from money illusion.B) worrying too much about a coming recession.C) behaving in accordance with classical economic theory. D) paying too much attention to changes in relative prices.

Q: What happens when the price level falls?A) Total planned real spending remains constant.B) Total planned real spending increases. C) Total planned real spending also falls.D) Planned real spending on goods increases but planned real spending on services falls.

Q: Of the following nations, the country with the highest saving rate isA) the United States. B) Japan.C) Mexico. D) Ethiopia.

Q: The difference between personal income and disposable personal income is thatA) disposable personal income includes only the funds available to spend on non -necessities. B) personal income taxes are not included in disposable personal income.C) personal income includes personal income taxes and indirect business taxes, which are not included in disposable personal income.D) personal income does not include transfer payments, such as Social Security payments or welfare payments and disposable personal income includes them.