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Economic
Q:
A firm produces a good and generates $5 million in receipts. Wages are $3 million, rent is $500,000, and interest payments are $1 million. ThenA) profits are $500,000, the cost of production is $4.5 million, and households receive income equal to $4.5 million.B) profits are $500,000, the cost of production is $5 million, and households receive income equal to $4.5 million.C) profits are $500,000, the cost of production is $5 million, and households receive income equal to $5 million.D) profits are $500,000, the cost of production is $5 million, and households receive income equal to $3.5 million.
Q:
In conditions of full employment,A) no one in or out of the labor force is unemployed.B) the only unemployment results from a normal frictions and structural mismatches in the labor market.C) the only unemployment results from cyclical swings in economic activity. D) no one in the labor force is unemployed.
Q:
Name the two international institutions that have been formed to attain higher rates of global economic growth and briefly discuss what each of the agencies does.
Q:
According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings aboutA) initial sluggish adjustment of the price level followed by higher inflation later on. B) initial rapid adjustment of the price level followed by lower inflation later on.C) initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on. D) sluggish growth in real GDP both initially and later on.
Q:
Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of
A) active policy making. B) decisive policy making.
C) nondiscretionary policy making. D) cooperative policy making.
Q:
The prices of all fixed-income assets (bonds)A) vary directly with the interest rate. B) are independent of the interest rate.C) vary inversely with the interest rate. D) are determined by the U.S. Treasury.
Q:
Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed mustA) permit the system to have prolonged reserve deficiencies.B) sell $2.5 million of government securities to the general public.C) sell $250,000 of government securities to the general public. D) buy $250,000 of government securities from the public.
Q:
A fiduciary monetary system has to have all of the following EXCEPTA) trust. B) the Federal Reserve System.C) acceptability. D) predictability of value.
Q:
The public debt can be thought of asA) the total amount consumers owe on their credit cards.B) the total amount in taxes consumers pay to the government. C) accumulated budget deficits and surpluses.D) the total amount the government spends for goods and services.
Q:
Suppose there currently is an inflationary gap. What could the government do to bring prices down?A) Nothing.B) Reduce government spending.C) Increase government spending.D) Shift the long-run aggregate supply curve.
Q:
With reference to the consumption function, the 45 -degree line represents
A) the planned savings function.
B) all points at which planned real saving is equal to real disposable income.
C) all points at which planned real saving is equal to planned real consumption spending.
D) all points at which real disposable income is equal to real consumption spending.
Q:
Suppose we observe the price level increasing and real GDP decreasing. An explanation for this is thatA) the dollar weakened and the effect on aggregate supply was less than the effect on aggregate demand.B) the dollar weakened and the effect on aggregate supply was greater than the effect on aggregate demand.C) the dollar strengthened and the effect on aggregate supply was less than the effect on aggregate demand.D) the dollar strengthened and the effect on aggregate supply was greater than the effect on aggregate demand.
Q:
Given the assumptions of the classical model,A) the economy will often experience recessions and expansions.B) expansion will be the normal condition, but recessions will often be severe and require government intervention.C) the macroeconomy is erratic, and problems will often be increased over time.D) the market is a self-correcting mechanism.
Q:
According to the interest rate effect, a decrease in the price level willA) decrease the real value of money balances, which causes total planned real expenditures to increase.B) cause interest rates to fall, which generates an increase in borrowing, so that total planned real expenditures increase.C) lead to a decrease in net exports, which causes total planned real expenditures to decrease. D) increase the real value of money balances, which causes interest rates to increase, there by reducing total planned expenditures.
Q:
Which one of the following is true?
A) Saving deters economic growth, because it takes money out of circulation.
B) Saving enables economic growth by providing for investment in the capital stock.
C) International comparisons have found no relationship between the rate of saving and the level of per capita real GDP.
D) Economies with sophisticated credit markets, such as the United States, have no need for saving.
Q:
If you take national income and add transfer payments, then subtract income earned but not received, the result will beA) net national product. B) disposable personal income. C) personal income. D) wages.
Q:
Refer to the above figure. Which arrows represent items that are not measured in dollar terms?A) Arrows A and B B) Arrows C and DC) Arrows A and D D) Arrows B and C
Q:
The natural rate of unemployment when seasonally adjusted includesA) frictional and structural unemployment but not cyclical.B) frictional and cyclical unemployment but not structural. C) frictional unemployment only.D) cyclical and structural unemployment but not frictional.
Q:
What is the mission of the International Monetary Fund (IMF)?
Q:
New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate, in chronological order,
A) a leftward movement along a horizontal short -run aggregate supply curve, a short -run decline in real GDP, a downward shift in the short-run aggregate supply curve, and a decrease in the price level.
B) a rightward movement along a horizontal short -run aggregate supply curve, a short -run increase in real GDP, an upward shift in the short-run aggregate supply curve, and an increase in the price level.
C) an leftward shift in a vertical short-run aggregate supply curve, a short -run decline in real GDP, an upward movement along the short -run aggregate supply curve, and an increase in the price level.
D) a rightward shift in a vertical short -run aggregate supply curve, a short -run increase in real GDP, an upward movement along the short -run aggregate supply curve, and an increase in the price level.
Q:
If a policy is carried out by a rule, then we have an example of
A) active policy making. B) discretionary policy making. C) nondiscretionary policy making. D) natural policy making.
Q:
When interest rates in the bond market go up,A) there is no impact on the price of existing bonds.B) the price of existing bonds goes up. C) the price of stocks goes up.D) the price of existing bonds goes down.
Q:
The reserve ratio is 10 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has $100 million in deposits, $8 million in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million in securities to the bond dealer. As a result, of this transaction alone,A) the money supply falls by $1 million and total reserves fall by $1 million. B) the money supply falls by $1 million and total reserves rise by $1 million. C) the money supply rises by $1 million, total reserves fall by $900,000.D) the money supply rises by $1 million, but reserves do not change.
Q:
A fiduciary monetary system meansA) that the value of each currency is determined by the amount of gold held by each nation.B) that the currency is backed by implicit faith in government. C) that money is legal tender.D) that money has commodity value.
Q:
Which of the following statements about the public debt is true?
A) It is a stock variable.
B) It is equal to the budget deficit.
C) It decreases when the government runs a budget deficit.
D) All of the above.
Q:
Refer to the above figure. If the economy is currently at point C, then an increase in taxes will lead toA) an increase in the price and an increase in real GDP. B) an increase in the price and a decrease in real GDP. C) a decrease in the price and a decrease in real GDP. D) a decrease in the price and an increase in real GDP.
Q:
Autonomous consumption is defined asA) the level of real consumption spending that is independent of real disposable income.B) the real consumption spending by the autonomous government.C) the level of real consumption spending that is equal to real disposable income.D) the consumption of foreign-made goods independent of exchange rates.
Q:
The net effect of a stronger dollar on real GDP isA) an increase in real GDP.B) a decrease in real GDP.C) an increase in the price level.D) dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand.
Q:
Which of the following is NOT an assumption of the classical model?
A) Buyers and sellers react to changes in relative prices.
B) Households want to maximize economic well being.
C) No single buyer or seller of a commodity can affect its price.
D) Wages and prices will move freely in the upward direction but not the downward direction.
Q:
A higher domestic price level shouldA) decrease net exports. B) increase desired investment. C) increase real wealth and consumption. D) none of these.
Q:
Economic growth depends on
A) low tax rates.
B) high government spending.
C) high rates of consumption.
D) increases in the capital stock as a result of saving.
Q:
Personal income is equal toA) NDP minus national income.B) disposable personal income plus personal income taxes.C) disposable personal income plus personal and corporate income taxes.D) national income minus (corporate income taxes and Social Security).
Q:
Refer to the above figure. Which arrows represent items that are measured in dollar terms?A) Arrows A and B B) Arrows C and DC) Arrows A and D D) Arrows B and C
Q:
Full employment is defined by the Council of Economic Advisers as
A) 4 percent.
B) every adult who wants to work has a job.
C) the unemployment rate associated with zero inflation.
D) the unemployment rate associated with the normal frictions in the labor market.
Q:
What is the mission of the World Bank?
Q:
If a significant portion of firms in the economy does not adjust product prices, a predicted result according to new Keynesian theory isA) real business cycles. B) real inflation cycles. C) inflation dynamics. D) output dynamics.
Q:
An example of nondiscretionary policy making isA) a rule under which the Fed targets the inflation rate. B) expansionary fiscal policy.C) changes in the interest rate initiated by the Fed.D) a Congressional tax-rate cut aimed at boosting real GDP.
Q:
When the Fed purchases federal government bonds in the open market,A) there is no change in the money supply. B) the money supply expands.C) the money supply contracts. D) the demand for money expands.
Q:
The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears,A) reserves remain unchanged because the decrease of reserves at the dealerʹs bank is offset by an increase in the reserves at the Fed.B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bankʹs deposits at the Fed.C) reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bankʹs deposits with the Fed.D) reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves.
Q:
The term ʺfiduciaryʺ comes from the Latin fiducia, which meansA) value. B) gold.C) money. D) trust or confidence.
Q:
The public debt isA) an excess of government spending over government revenues during a given time period. B) a situation in which the governmentʹs spending is exactly equal to the total taxes and other revenues it collects during a given time period.C) the total value of all outstanding federal government securities.D) all federal government debt irrespective of who owns it.
Q:
Refer to the above figure. Suppose that the economy was originally at point A, and then it reached point C by means of a fiscal policy action. Which of the following is correct?A) Point C is a short-run equilibrium that could have been attained through a tax cut, but in the long run the economy will end up at point B.B) Point C is both a short-run equilibrium and a long-run equilibrium that could have been attained through an increase in government spending.C) Point C is a long -run equilibrium that could have been attained through a tax increase, although reaching this point first required a short-run equilibrium at point B.D) Point C is a short-run equilibrium that could have been attained through a reduction in government spending, but in the long run the economy will end up at point B.
Q:
Autonomous consumptionA) is measured by the slope of the consumption function.B) is the reciprocal of consumption. C) is equal to the minimum savings.D) is measured by the intercept of the consumption function and the Y -axis.
Q:
One effect of a stronger dollar isA) an increase in U.S. exports and a reduction in U.S. imports.B) a reduction in U.S. exports and an increase in U.S. imports. C) an increase in net exports.D) an increase in both imports and exports. The effect on net exports is uncertain.
Q:
Which of the following is NOT an assumption of the classical model?A) Wages and prices are flexible. B) Investment will lead to money illusion.C) People are motivated by self-interest. D) Pure competition exists.
Q:
An individual holds $10,000 in a non -interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expectA) the individualʹs real wealth to decrease and consumption to decline.B) the individualʹs stock of real wealth to decrease but real national income to increase.C) no change in the individualʹs real wealth but a decline in real national product. D) the individualʹs wealth to increase.
Q:
Countries with higher rates of savingA) experience lower growth rates in the future. B) have a large population.C) have a greater number of poor people. D) have higher rates of growth.
Q:
National income is income the factors of production.A) paid by B) earned byC) invested in D) households owe to
Q:
Refer to the above figure. The top two arrows of the figure refer to the product markets. The bottom arrows refer to the factor markets. Which arrow represents total income?A) Arrow A B) Arrow B C) Arrow C D) Arrow D
Q:
Full employment means thatA) everyone who wants a job has a job, although it may not be the job they really want.B) everyone who wants a job has a job, and they have the job they most prefer.C) taking seasonal fluctuations into account, only frictional and structural unemployment exist.D) the sum of structural and cyclical unemployment is greater than frictional unemployment.
Q:
Which of the following is NOT a function of the International Monetary Fund?
A) serve as lender of last resort for national governments
B) administer an international foreign exchange system
C) establish the SDR system nations utilize to settle international payment obligations
D) establish and administer each nationʹs fiscal and monetary policies
Q:
The new Keynesian sticky-price theory indicates that an increase in aggregate demand generatesA) a speedy rise in real GDP but a sluggish increase in the price level. B) a speedy rise in the price level but a sluggish increase in real GDP. C) sluggish increases in both real GDP and the price level.D) rapid increases in both real GDP and the price level.
Q:
When policy makers base their actions on a rule there isA) active policy making. B) passive policy making.C) rationalization policy making. D) rational expectations policy making.
Q:
How does the Fed increase the level of reserves in the banking system?A) by lowering interest rates B) by raising interest ratesC) by selling bonds D) by buying bonds
Q:
If a $1 million open market purchase by the Fed generates a new deposit at a bank that immediately causes the bankʹs reserves held at the Fed to increase by $1 million, then the T-account effects are that the bankʹs assets and liabilities by $1 million and that the Fedʹs assets and liabilities by $1 million.A) decline; decline B) increase; declineC) decline; increase D) increase; increase
Q:
In a fiduciary monetary system,A) coins get their value from the precious metals of which they are made.B) money gets its value from the confidence that the public has in its acceptability. C) paper currency does not have value, but balances in checking accounts do.D) checking account balances do not have value, but paper currency does.
Q:
A government budget surplus is
A) a situation in which the supply of goods in the economy is greater than the demand for goods.
B) a situation in which the amount spent by the government is greater than the amount collected in taxes.
C) the public debt.
D) an excess of revenues over government spending.
Q:
Refer to the above figure. Suppose the U.S. economy is currently operating at point C. Which of the following actions would you recommend to the president of the United States?A) Reduce taxes to stimulate investment, consumption and net exports. B) Increase government spending while holding taxes constant.C) Engage in contractionary fiscal policy by reducing government spending.D) Reduce the interest rate to stimulate investment minimizing the crowding out effect.
Q:
If real disposable income increases, the average propensity to save will A) initially increase, and then decrease. B) remain constant. C) increase. D) decrease.
Q:
A stronger dollar leads to cheaper input prices for U.S. firms becauseA) U.S. workers are willing to work for less pay because of the stronger dollar.B) U.S. producers of intermediate goods lower prices in order to benefit from the stronger dollar.C) imports of raw materials and intermediate goods are cheaper. D) exports of raw materials and intermediate goods are cheaper.
Q:
An assumption of the classical model is thatA) money illusion is widespread.B) people make decisions based on nominal prices rather than real prices. C) prices are flexible while wages are inflexible.D) people are motivated by self-interest.
Q:
One impact of a rise in the dollarʹs value is that
A) imports become cheaper for the U.S. consumer.
B) exports will increase sharply.
C) U.S. goods will become cheaper overseas.
D) U.S. goods are cheaper domestically.
Q:
It is likely that a small increase in a countryʹs saving rate will have
A) a large effect on per capita real GDP many years later because the increase in saving leads to a slightly higher rate of economic growth which has large effects over time.
B) a large effect on per capita real GDP immediately because the increase in saving leads to a much larger rate of economic growth.
C) a small effect on per capita real GDP many years later because the increase in saving will have very little effect on the growth rate.
D) a small effect on per capita real GDP many years later because the increase in saving will be offset in later years by a decrease in the saving rate.
Q:
Gross Domestic Product (GDP) = $13.0 trillion, consumption = $9.5 trillion, depreciation = $1.8 trillion, other business income adjustments less indirect business taxes = $0.2 trillion, and net U.S. income earned abroad = $0.1 trillion. Use this information to calculate national income (NI).A) NI = $11.0 billion B) NI = $11.3 billionC) NI = $11.4 billion D) NI = $11.5 billion
Q:
Refer to the above figure. The top two arrows of the figure refer to the product markets. The bottom arrows refer to the factor markets. Which arrow represents factor services?A) Arrow A B) Arrow B C) Arrow C D) Arrow D
Q:
Which of the following statements about full employment is correct?I. Full employment means that the unemployment rate is less than 1/2 of 1 percent.II. Full employment means that the transaction costs associated with getting a job are zero.A) I only B) II only C) Both I and II D) Neither I nor II
Q:
Which organization functions as a lender of last resort for national governments?A) The World BankB) The U.S. TreasuryC) The Federal Reserve Bank D) The International Monetary Fund
Q:
If a significant portion of firms in the economy does not immediately adjust product prices, then the short-run aggregate supply curveA) slopes upward. B) slopes downward.C) is horizontal. D) is vertical.
Q:
Actions on the part of monetary and fiscal policy makers that are undertaken in response to some change in the overall economy are known asA) nondiscretionary policy making. B) passive policy making. C) creative policy making. D) active policy making.
Q:
The Fed would be pursuing a contractionary monetary policy if it was
A) lowering the differential between the discount rate and the federal funds rate.
B) lowering the reserve requirement.
C) selling dollars in foreign exchange markets.
D) selling bonds in the open market.
Q:
When the Federal Reserve sells a government security to a commercial bank, A) the cash reserves of the commercial bank decrease.B) the net worth of the commercial bank increases. C) the loans of the commercial bank will increase.D) the balance sheet of the commercial bank is thrown off balance.
Q:
Of the items in the following lists, which go from most liquid to least liquid?A) a checking account, a house, a six-month certificate of deposit, shares of stock B) a six-month certificate of deposit, shares of stock, a house, a checking account C) a checking account, a certificate of deposit, shares of stock, a houseD) a house, a six-month certificate of deposit, shares of stock, a checking account
Q:
If the government spends less than what it receives in taxes during a given interval, then the result isA) a balanced budget. B) an entitlement.C) unrealized public debt. D) a government budget surplus.
Q:
Refer to the above figure. If the economy is currently operating at point C, then there isA) a stable long-run equilibrium situation. B) a recessionary gap. C) an inflationary gap. D) unemployment.
Q:
If real disposable income increases, the average propensity to consume willA) initially increase, and then decrease. B) remain constant.C) increase. D) decrease.
Q:
A stronger U.S. dollar in world exchange markets means thatA) a dollar buys more units of foreign currency than it could before.B) a dollar buys less units of foreign currency than it could before.C) a dollar buys the same amount of foreign currency than it could before, with gold backing up the value of the dollar.D) foreigners sell the dollars that they have.
Q:
Which of the following is NOT true according to Sayʹs law?A) Supply creates its own demand.B) No overproduction is possible in a market economy in the long run.C) Desired expenditures will always be higher than actual expenditures.D) Producing goods and services generates the means and the willingness to purchase other goods and services.
Q:
If the price level increases,A) the buying power of your checking account falls.B) the buying power of your checking accounts rises with it. C) there is no effect on buying power.D) the economy tends to grow faster.
Q:
Many countries find it difficult to achieve economic growth. This is because economic growth
A) is not understood well by economists, so it is difficult to advise policy makers on the best policies to pursue.
B) requires saving, and saving means less consumption today. A poor country may find it difficult to consume less today.
C) appears to be predetermined and not subject to factors that policy makers can have any affect on.
D) depends on technological change and technological change depends on noneconomic factors such as the growth rate of scientific knowledge.
Q:
Suppose net domestic product is $4.8 billion, net income earned abroad is $0.7 billion, other business income adjustments net of indirect business taxes and transfers are $0.4 billion, and personal income taxes are $0.8 billion. Then, national income equalsA) $2.9 billion. B) $3.6 billion. C) $5.9 billion. D) $6.7 billion.