Q&A Hero

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 the final consumer goods and services?A) Arrow A B) Arrow B C) Arrow C D) Arrow D

Q: An unemployment rate of zero cannot be expected sinceA) there are some people who do not want to work. B) there will always be discouraged workers.C) some portion of the labor force will always be between jobs. D) aggregate demand can never create enough job vacancies.

Q: When a nation joins the IMF, it deposits funds into an account. These funds have a value based on a weighted average ofA) the euro, the British pound sterling, the Japanese yen, and the U.S. dollar. B) the euro, the British pound sterling, the Chinese yuan, and the U.S. dollar.C) the Russian ruble, the British pound sterling, the Japanese yen, and the U.S. dollar. D) the Russian ruble, the British pound sterling, the Chinese yuan, and the U.S. dollar.

Q: Menu costs are A) the constantly changing resource prices that make planning for firms difficult. B) the advertised prices for final products that firms guarantee for a certain period of time. C) the cost of compliance with government regulations. D) the costs that deter firms from changing prices in reaction to demand changes.

Q: Which of the following scenarios can be classified as passive policy making?A) The Federal Reserve cuts the federal funds rate in order to increase economic activity. B) The federal government increases spending in order to create jobs.C) The Federal Reserve adjusts the money supply as appropriate to attain a target rate of inflation.D) Congress increases expenditures in an effort to stimulate economic activity.

Q: Which of the following is associated with a contractionary monetary policy? A) Lowering the differential between the discount rate and the federal funds rate B) Selling bonds C) Lowering the required reserve ratio D) Raising bond prices

Q: The potential money multiplier for the banking system in the above table isA) 5. B) 9. C) 1. D) 10.

Q: An asset is liquid ifA) it earns interest.B) it is backed by a government guarantee.C) it can be exchanged for other items of value without high transaction costs. D) All of the above are correct.

Q: If the government spends exactly what it receives in taxes during a given interval, then the result isA) a balanced budget. B) the gross public debt.C) the net public debt. D) a government budget deficit.

Q: Refer to the above figure. Suppose the economy is at point A. By the proper use of fiscal policy, the government canA) boost taxes to shift LRAS through point A.B) increase government spending to get the economy to point B.C) raise income tax rates to get the economy to point C.D) reduce government spending to get the economy to point D.

Q: The relationship between real consumption spending and real disposable incomeA) is direct. B) is inverse.C) plots a vertical line. D) plots a horizontal line.

Q: After a small hurricane in Florida, unemployment is low as there is a great deal of construction work and businesses run at full capacity. This suggests thatA) the economy is operating above the full -employment level and will eventually adjust back to long-run aggregate supply.B) living standards are falling as employment and economic activity are too high.C) the economy is operating below its long-run level and living standards are less than they would have been without the hurricane.D) the hurricane is beneficial since it is increasing employment and replacing less efficient capital with newer and more efficient capital.

Q: Sayʹs law implies thatA) surpluses never occur.B) surpluses or shortages are possible, but only for a short time.C) there will always be unemployment. D) shortages never occur.

Q: A price level increase tends to reduce net exports, thereby reducing the amount of real goods and services purchased in the United States. Economists refer to this phenomenon asA) the wealth effect. B) the barrier effect.C) the open-economy effect.D) the Gross Domestic Product (GDP) effect.

Q: If all income is consumed in a year, then A) investment spending will increase. B) income next year will increase.C) investment spending will be zero.D) any investment spending will be done by the government.

Q: The total factor payments to all resource owners is calledA) net domestic product. B) personal income.C) national income. D) gross domestic income.

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 the total monetary value of all goods and services?A) Arrow A B) Arrow B C) Arrow C D) Arrow D

Q: The natural rate of unemployment does NOT include which of the following?A) cyclical unemployment B) frictional unemploymentC) seasonal unemployment D) all of the above

Q: After the financial crisis in the 1990s many economists criticized the IMF and the World Bank. Some suggestions for reform are toA) create a board of directors made up of finance ministers for the IMF.B) eliminate both the institutions.C) increase private-sector lending by governments providing tax breaks to lenders. D) all of the above

Q: Economists who favor policy activism argue that the United States economy is NOT always in equilibrium becauseA) the national debt is too large.B) the Federal Reserveʹs monetary policy is too restrictive.C) the markets are over regulated. D) wage and price rigidities exist.

Q: Proponents of passive policy making believe that A) the existence of time lags makes active policy ineffective or even procyclical. B) time lags do not exist so the economy will adjust too rapidly with active policy. C) government should not follow any particular policy. D) fiscal policy is always better than monetary policy in stabilizing the economy.

Q: The Fed engages in open market operations and sells government securities. The result is A) lower interest rates. B) higher interest rates. C) interest rates remain unchanged since there is no reason to think bond prices changed. D) uncertain since more information is needed.

Q: Based on the above table, an open market operation in which the Fed purchased $100,000 of government securities wouldA) create a reserve deficiency for the banking system.B) lead to a maximum potential expansion of the money supply of $100,000. C) lead to a maximum potential expansion of the money supply of $1 million. D) cause demand deposits to fall by $100,000.

Q: Which of the following is the most liquid?A) real estate B) currency.C) U.S. treasury bonds. D) shares of stock.

Q: A government balanced budget 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 the economy is operating at point A. There is a recessionary gap of , which can be closed by .A) $3 trillion; increasing government spending by $1 trillionB) $1 trillion; expansionary fiscal policy that shifts the short-run aggregate supply curve through point CC) $2 trillion; expansionary fiscal policy that generates another $2 trillion in total spendingD) $2 trillion; an increase in government spending of $14 trillion

Q: The saving function shows the relationship between planned real saving andA) real wealth. B) real disposable income.C) the average propensity to save. D) the marginal propensity to save.

Q: The inflation associated with the oil price shocks in the 1970s after OPEC restricted the supply of oil is an example ofA) cost-push inflation due to a supply shock. B) cost-push inflation due to a demand shock.C) demand-pull inflation due to a demand shock. D) demand-pull inflation due to a supply shock.

Q: Which of the following statements is NOT true about Sayʹs law?A) Desired expenditures will equal actual expenditures.B) Surpluses will be eliminated by falling prices and shortages will be eliminated by increasing prices.C) People produce more goods than they want for their own use only if they seek to trade them for other goods.D) Markets would be regularly hit by severe shortages and surpluses.

Q: When the relative prices of U.S. -manufactured goods go up, the result isA) an increase in exports. B) a decrease in exports.C) a decrease in imports. D) no net change in imports or exports.

Q: There has been some concern in the United States that people are not saving enough. This is a concern becauseA) decreases in saving lead to decreases in labor productivity.B) decreases in saving lead to decreases in investment.C) decreases in saving lead to increases in the capital stock.D) decreases in saving lead to increases in consumption in the future.

Q: The annual cost of producing the entire output of final goods and services in an economy isA) equal to the quantity of total output produced.B) greater than the total income of households in the economy.C) equal to total income.D) equal to the total income of households in the economy only if profits are zero.

Q: Which of the following is NOT a final good or service?A) an automobile B) bread C) flour D) a cookie

Q: Full employment does not necessarily mean that every adult has a job because A) students and homemakers are always looking for work. B) there are always some discouraged workers. C) policy makers never want to achieve full employment. D) there are transaction costs in finding a job in the labor market.

Q: Each countryʹs IMF quota subscription is determined byA) the relative size of its national income.B) the size of its population. C) the size of world trade.D) how much a country wants to contribute.

Q: Small menu costs are a common reason offered for the existence ofA) sticky wages. B) sticky resource prices.C) sticky prices. D) sticky product adjustments.

Q: When policy makers take actions in response to or in anticipation of some change in the overall economy, there isA) active policy making. B) passive policy making.C) rationalization policy making. D) rational expectations policy making.

Q: Which of the following is a true statement about the relationship between the price of bonds and the interest rate?A) The prices of bonds are directly related to the interest rate. B) The prices of bonds increase when the interest rates rise.C) The prices of bonds are unrelated to the interest rate.D) The prices of bonds are inversely related to the interest rate.

Q: Based on the above table, the reserve ratio for the banking system isA) 20 percent. B) 10 percent. C) 15 percent. D) 1 percent.

Q: Which of the following assets is the most liquid in the United States?A) U.S. Treasury Bonds B) U.S. currencyC) corporate bonds D) an antique car

Q: A federal deficit of $300 billion means thatA) the government has a total debt of $300 billion. B) government spending is $300 billion a year.C) the government is spending $300 billion a year more than it is collecting in taxes. D) the government plans on collecting $300 billion in taxes this year.

Q: Which of the following actions could be undertaken if the government wants to close a recessionary gap?A) Increase taxes and reduce government spending. B) Reduce taxes and increase government spending. C) Increase taxes and increase government spending. D) Reduce taxes and reduce government spending.

Q: The consumption function shows the relationship between planned real consumption spending andA) real disposable income. B) planned real saving.C) the average propensity to consume. D) the marginal propensity to consume.

Q: Which of the following can cause inflation?A) Increases in short-run aggregate supply B) Increases in long-run aggregate supply C) Decreases in short-run aggregate supply D) Decreases in aggregate demand

Q: Sayʹs law states thatA) desired expenditures will equal actual expenditures. B) people produce only the goods they want.C) demand is always less than supply.D) overproduction is never possible because of limited resources.

Q: When interest rates rise,A) borrowing costs increase, and total planned real expenditures decline. B) borrowing costs increase and total planned real expenditures increase. C) borrowing costs decline, and total planned real expenditures increase. D) borrowing costs decline, and total planned real expenditures decline.

Q: The relationship between the rate of saving and per capita real GDP isA) positive. B) negative. C) constant. D) not stable.

Q: National income is equal toA) Gross Domestic Product (GDP) plus depreciation and indirect business taxes. B) the sum of all factor payments to resource owners.C) Gross Domestic Product (GDP) minus indirect business taxes. D) Gross Domestic Product (GDP) minus NDP.

Q: In the simple circular flow model, the funds received by a carmaker when it sells a car goes toA) the workers who helped build the car.B) the owners of firms who sold materials to the carmaker, and the rest stays with the firm. C) only the owners of the carmaker.D) the owners of all of the resources used to make the car.

Q: Which of the following best describes an economy with full employment? A) ʺEveryone who is looking for a job will have one.ʺ B) ʺNo person is unemployed for whatever reason.ʺ C) ʺFull employment occurs only when the economy has a zero percent unemployment rate.ʺ D) ʺThe level of unemployment that corresponds to the normal friction in the labor market.ʺ

Q: The ʺcurrencyʺ of the IMF is theA) International Currency Unit. B) Special Drawing Right.C) IMF Dollar. D) U.S. dollar.

Q: Costs of renewing contracts or printing new price lists are known asA) small business costs. B) small menu costs.C) small operating costs. D) small production costs.

Q: If a policy maker is convinced that time lags frequently negate the impact of short -run stabilization efforts, it is likely she would favor policy making.A) nondiscretionary B) discretionaryC) active D) aggressive

Q: A bond is selling for $1000 and it pays $150 in interest a year. If the interest rate changes to 20 percent, thenA) the interest payment rises to $200. B) the interest payment falls to $75.C) the price of the bond falls to $750. D) the price of the bond rises to $1500.

Q: Which of the following is NOT an asset of a bank?A) cash B) loansC) total reserves D) transaction deposits

Q: Which of the following would be considered the least liquid asset?A) currency B) checkable depositsC) travelers checks D) shares of stock

Q: Which of the following statements about the budget deficit is true?A) It is a stock variable. B) It is a flow variable. C) It is equal to the public debt. D) None of the above.

Q: Which of the following actions could be undertaken if the government wants to reduce an inflationary gap?A) Increase taxes and reduce government spending. B) Reduce taxes and increase government spending. C) Increase taxes and increase government spending. D) Reduce taxes and reduce government spending.

Q: According to Keynes, real saving and real consumption spending are functions ofA) economic expectations. B) an individualʹs future earning potential. C) current educational attainment. D) current real disposable income.

Q: Cost-push inflation isA) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply.B) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply.C) inflation caused by decreases in aggregate supply that generate an even larger decrease in aggregate demand.D) inflation caused by decreases in aggregate supply that are not matched by decreases in aggregate demand.

Q: The concept that producing goods and services generates the means and the willingness to purchase other goods and services isA) the Keynesian approach. B) money illusion.C) Sayʹs Law. D) cost-push inflation.

Q: Higher interest rates tend toA) reduce the total planned spending on goods and services. B) lower the costs of building new plants and equipment.C) increase the quantity demanded of goods and services. D) make it less costly for people to buy houses and cars.

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

Q: The amount of income households receive after personal income taxes have been paid is known asA) national income. B) personal income.C) disposable personal income. D) gross domestic income.

Q: Households receive their income in the circular flow diagram by A) selling the use of their property. B) selling the goods they produce at home. C) obtaining dividends and interest payments. D) selling resources they own to business firms.

Q: The estimate of the current natural rate of unemployment rate in the United States is approximatelyA) 0 percent. B) 3 percent.C) 10 percent. D) none of the above.

Q: Both the World Bank and the IMF typicallyA) make loans for less than 5 years only.B) impose stringent preconditions that the borrowers must meet. C) charge lower than average loan rates to ensure repayment.D) charge higher than average loan rates.

Q: Menu costs are a possible reason for A) aggregate supply shocks. B) low levels of consumer confidence in response to aggregate supply shocks. C) sticky product prices. D) swings in the labor force participation rate.

Q: With discretionary policy making, fiscal and monetary policies are usually A) undertaken in response to or anticipation of some change in the overall economy. B) set according to pre-established standards that do not take into account any changes in the economy. C) immune to any political overtones. D) immune to any lag times that might counter their effectiveness.

Q: A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond wasA) $1000 and now is $500. B) $1000 and now is $2000.C) $500 and now is $2000. D) $2000 and now is $1000.

Q: If a check was written on Bank A for $100 and Bank B presented the check to Bank A for payment, what will happen to the required reserves for each respective bank after payment is made? A) Bank Aʹs required reserves increase; Bank Bʹs decrease. B) Bank Bʹs required reserves increase; Bank Aʹs decrease. C) Both banks will see an increase in their required reserves. D) Both banks will see a decrease in their required reserves.

Q: Even when people know the purchasing power of the currency is declining, they continue to use the currency becauseA) they have no other choice.B) its value is holding better than any other asset. C) its value is still predictable.D) it still has some intrinsic value.

Q: If the government spends more than it receives in taxes during a given interval, then the result isA) a balanced budget. B) the gross public debt.C) the net public debt. D) a government budget deficit.

Q: Other things being equal, a reduction in taxes willA) lead to a reduction in the long run aggregate supply curve as businesses enjoy greater profits.B) influence the short run aggregate supply curve but not the aggregate demand curve. C) lead to a corresponding reduction in interest rates increasing the crowding out effect.D) cause an increase in aggregate demand due to increases in consumption, investment, or net exports.

Q: Which of the following changes will shift the consumption function upward?A) an increase in wealth B) a decrease in wealthC) a decrease real disposable income D) an increase in real disposable income.

Q: Demand-pull inflation isA) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply.B) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply.C) inflation caused by reductions in short -run aggregate supply. D) inflation caused by reductions in long-run aggregate supply.

Q: ʺSupply creates its own demandʺ is known asA) Keynesʹ Rule. B) the circular flow.C) Smithʹs law. D) Sayʹs law.

Q: The interest rate effect that helps explain the slope of the aggregate demand curve arises because A) interest rates and total planned real expenditures are unrelated. B) an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures. C) an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures. D) a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures.

Q: Saving is important for economic growth becauseA) a higher saving rate reduces investment spending. B) a higher saving rate increases investment spending. C) more saving increases consumption immediately.D) a higher saving rate will decrease the standard of living in the future.

Q: National income includes all of the following EXCEPTA) proprietorsʹ income. B) net interest. C) corporate profits. D) depreciation.