Q&A Hero

Q: The annual cost of producing the entire output of goods and services in the economyA) includes financial transactions.B) can be calculated entirely on the basis of financial transactions. C) includes durable goods but excludes nondurable goods.D) is total income.

Q: Describe the major types of unemployment.

Q: Voting power in the IMF is determined by A) the population size of member states. B) the quota subscription size.C) the length of membership.D) the size of the member nationʹs trade surplus.

Q: Which of the following factors strengthens the case for policy activism?A) sticky prices B) flexible wagesC) flexible pricesD) lack of real-business-cycles

Q: Monetary and fiscal policy making that is carried out in response to a pre -set rule and does not respond to changes in economic activity is known asA) active policy making. B) discretionary policy making. C) nondiscretionary policy making. D) Keynesian policy making.

Q: Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?A) Panels A and B B) Panels A and C C) Panels B and C D) Panels C and D

Q: Which of the following is a liability to a bank?A) total reserves B) transaction depositsC) government securities D) loans

Q: The value of a dollar variesA) inversely with the price of gold.B) inversely with the price level.C) directly with the price level.D) directly with the purchasing power of other major currencies.

Q: A government budget deficit 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: Suppose the government increases lump-sum taxes. This causesA) disposable income to decrease, which causes consumption spending to decrease and aggregate demand to decrease.B) government spending to decrease, which causes aggregate demand to decrease.C) consumption spending to decrease and spending on imports to increase. The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most.D) disposable income to decrease, which causes aggregate supply to decrease.

Q: If your real disposable income goes up by $1,000 per week, and your real consumption spending goes up by $800 per week, you have an marginal propensity to save ofA) 0.2. B) 0.8. C) 1.2. D) 1.0.

Q: If the U.S. dollar becomes weaker in international markets, the net effects will includeA) a decrease in short-run aggregate supply (SRAS) and an increase in aggregate demand. B) an increase in short-run aggregate supply (SRAS) and a decrease in aggregate demand. C) a decrease in both short run aggregate supply (SRAS) and aggregate demand.D) an increase in both short run aggregate supply (SRAS) and aggregate demand.

Q: According to the classical economists, actual real GDP A) always equals actual aggregate income.B) sometimes equals actual aggregate income. C) never equals actual aggregate income.D) is not related to aggregate income.

Q: If other factors are held constant, an increase in the price levelA) causes desired net export spending to rise. B) causes desired net export spending to fall.C) causes the real value of the money to increase. D) induces people to spend their money faster.

Q: Other things held constant, higher saving rates lead toA) a lower standard of living.B) increases in the number of hours workers work.C) decreases in real per capita GDP. D) higher living standards.

Q: If consumption expenditures are $500, spending on fixed investment is $100, imports are $40, exports are $75, the capital consumption allowance is $25, government spending is $50, and inventories have fallen by $5, then Gross Domestic Product (GDP) isA) $25 greater than NDP. B) $20 greater than NDP. C) $50 greater than NDP. D) the same as NDP.

Q: All of the following are incomes earned in the factor market EXCEPTA) wages. B) prices of goods and services.C) profits. D) rents.

Q: A person who is unemployed because of a mismatch between the personʹs skills and current employment requirements is experiencingA) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

Q: Both the International Monetary Fund and the World Bank were establishedA) at the end of World War I. B) at the end of World War II. C) in the 1960s. D) in the 1970s.

Q: Costs that tend to deter firms from changing their prices in response to changes in the market equilibrium price are referred to asA) large menu costs. B) small menu costs. C) real menu costs. D) burden costs.

Q: Which of the following would be an example of passive policy making?A) Establishing a system of automatic tax stabilizersB) Marginal rate tax cuts intended to increase real Gross Domestic Product (GDP)C) Government spending decreases intended to decrease real Gross Domestic Product (GDP) D) None of the above

Q: Refer to the above figure. Which panel is consistent with the Fed buying bonds?A) Panel A B) Panel B C) Panel C D) Panel D

Q: If a check written on one bank is deposited in another bankA) the money supply increases.B) the money supply remains unchanged. C) the money supply decreases.D) new reserves are created for the banking system.

Q: A fiduciary monetary system ultimately rests onA) the value of the metal backing up the system. B) the publicʹs confidence in the system.C) the value of the assets backing up the system. D) the difficulty of counterfeiting the currency.

Q: The total value of all outstanding federal government securities isA) a flow variable. B) the budget deficit.C) total personal wealth. D) none of the above.

Q: If the economy is experiencing an inflationary gap and the government wants to accelerate the adjustment to the long-run equilibrium, it should A) reduce aggregate demand by cutting government spending or raising taxes. B) reduce aggregate demand by increasing government spending or cutting taxes. C) increase aggregate supply by cutting government spending or raising taxes. D) increase aggregate supply by increasing government spending or lowering taxes.

Q: If your real disposable income goes up by $1,000 per week, and your real consumption spending goes up by $800 per week, you have a marginal propensity to consume ofA) 0.2. B) 0.8. C) 1.2. D) 1.0.

Q: A weaker U.S. dollar simultaneously leads to in SRAS and in AD.A) a leftward shift ; a rightward shift B) a rightward shift; a leftward shiftC) an outward shift; an outward shift D) an inward shift; an inward shift

Q: According to the classical economists, an economy producing $15 trillion in goods and servicesA) may be producing too much since the needs of people may not be this great.B) simultaneously generates the income necessary to purchase $15 trillion in goods and services.C) is supplying $15 trillion in goods and services, but could be demanding more or less than $15 trillion in goods and services for a very long period of time.D) could experience a permanent glut if no one has estimated the demand for goods and services in the economy.

Q: Another term for the real-balance effect isA) the substitution effect. B) the wealth effect.C) the indirect effect. D) the interest rate effect.

Q: An important factor in determining a countryʹs rate of economic growth isA) the diversity of its population. B) its rate of saving.C) the size of its labor force.D) the proportion of the adult population that is working.

Q: All of the following statements are correct EXCEPTA) NDP = Gross Domestic Product (GDP) - depreciation (capital consumption allowance). B) NI = NDP + indirect business taxes.C) Net exports = total exports - total imports.D) Gross Domestic Product (GDP) = NDP + capital consumption allowance (depreciation).

Q: Total income is defined asA) the total receipts of firms before taxes.B) the total amount earned by all resource owners.C) the sum of the total receipts of firms and the amount earned by households. D) the sum of the total receipts of firms less the amount of tax that must be paid.

Q: The unemployment rate reported by the Bureau of Labor Statistics includes all of the following type of unemployment with the exception ofA) frictional unemployment. B) structural unemployment. C) hidden unemployment. D) cyclical unemployment.

Q: The international unit of accounting used by the IMF is theA) euro. B) special financial right. C) special drawing right. D) dollar.

Q: If the price of bubble gum changed in the market from 1 cent to 1.5 cents and Joeʹs Market didnʹt change the price it charges for the bubble gum, this behavior is likely due toA) discretionary policy. B) economic laziness.C) large menu costs. D) small menu costs.

Q: Active policy making refers toA) actions taken by policy makers in response to or in anticipation of some change in the overall economy.B) policy making that is carried out in response to a rule.C) relying on policies that act as automatic stabilizers. D) nondiscretionary policy making.

Q: Refer to the above figure. Which panel is consistent with the Fed selling bonds?A) Panel A B) Panel B C) Panel C D) Panel D

Q: If a bank receives a new transaction deposit of $100,000 and the reserve ratio is 20 percent, then the bank could expand its loans by as much asA) $20,000. B) $80,000. C) $100,000. D) $400,000.

Q: Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset becauseA) it is still easier than relying on barter. B) they have no choice.C) once an asset is defined as money it is always money. D) people expect money will come back at a later date.

Q: If the public debt increased by the same amount each year during the past three years, then A) the U.S. government must have operated with the same budget surpluses during the past three years. B) the U.S. government must have experienced budget surpluses that increased by the same amount each of the past three years. C) the U.S. Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three years. D) during each of the past three years, the U.S. Treasury must have bought back the same amount of securities that had previously been issued to cover deficits experienced more than three years ago.

Q: If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal policy willA) generate higher prices in the short run, but will induce aggregate supply to increase in the long run.B) generate an increase in real GDP and higher prices in both the short run and the long run. C) generate an increase in real GDP without higher prices in the short run, but then real GDP will return to its long-run level, and the price level will increase.D) generate an increase in real GDP and higher prices in the short run, but then real GDP will decrease to its long-run level, and the price level will increase some more.

Q: The consumption function is the relationship betweenA) real consumption spending and real taxes.B) real consumption spending and investment spending. C) real consumption spending and real disposable income. D) real consumption spending and real saving.

Q: If the U.S. dollar becomes weaker in international foreign exchange markets, imported goods become more expensive. One result of this is thatA) net exports decrease. B) net exports increase.C) domestic employment rises.D) real Gross Domestic Product (GDP) increases.

Q: The classical economists assumed thatA) monopoly was widespread in the economy.B) government intervention in the economic system was necessary and helpful. C) wages and prices were inflexible, especially downward.D) wages and prices were flexible.

Q: The real-balance effect shows thatA) aggregate demand is upward sloping.B) a higher price level leads to higher interest rates.C) a lower price level will increase the purchasing power of currency and increase personal consumption.D) consumption and the price level are positively correlated.

Q: When comparing across countries, the higher the rate of saving,A) the lower the level of per capita real Gross Domestic Product (GDP).B) the higher the level of per capita real Gross Domestic Product (GDP). C) the less industrialized the country.D) the lower the productivity rates.

Q: How is interest measured when used in deriving GDP?

Q: Which of the following statements is true about profits?A) Profits are excluded from the circular flow of the income diagram.B) The only portion of profits that are included in the circular flow diagram are the portion paid out in the form of dividends.C) Profits are considered one of the resources necessary for production. D) Profits are considered a cost of doing business.

Q: Annie had a job as a human resource manager of a restaurant chain that went out of business due to a downturn in the economy. This is an example ofA) cyclical unemployment. B) structural unemployment.C) seasonal unemployment. D) technological unemployment.

Q: A multinational organization that aims to promote world economic growth through more financial stability isA) the World Monetary Fund. B) the International Bank.C) the International Monetary Fund. D) the International Monetary Bank.

Q: New Keynesian inflation dynamics can account for sluggish responses ofA) real GDP to variations in aggregate supply.B) real GDP to variations in aggregate demand. C) inflation to variations in aggregate supply. D) inflation to variations in aggregate demand.

Q: According to traditional Keynesians, monetary policy as a tool to fight a recessionA) has an uncertain effect on the economy, depending on the direction of fiscal policy.B) is very effective because interest rates will fall immediately. C) is ineffective because interest rates will not fall.D) cannot be determined because traditional Keynesians do not consider monetary policy at all.

Q: An increase in the interest rate will A) decrease the price of bonds. B) increase the price of bonds.C) increase or decrease the price of bonds depending upon whether the money supply has increased or decreased.D) leave the price of bonds unchanged.

Q: The balance sheet of a bank shows itsA) profits and losses. B) assets and liabilities. C) earnings and expenses. D) revenues and costs.

Q: The essential difference between paper money and coins as forms of money is thatA) the metallic content of coins makes them more acceptable as money.B) paper money issued by the Federal Reserve Board is backed by gold while coins are not. C) paper money serves as a unit of account while coins do not.D) paper is paper and not metal. The metal is more durable.

Q: Other things being equal, during a period when the federal government issues more Treasury securities to borrow funds, A) the flow of government expenditures during that period must exceed the flow of tax revenues. B) the flow of government expenditures during that period must exceed the stock of tax collections. C) the stock of government deficit spending during that period must exceed the flow of tax revenues. D) the stock of government deficit spending during that period must exceed the stock of tax collections.

Q: Fiscal policy includes all of the following EXCEPT A) changing taxes. B) changing government spending. C) policies that influence aggregate demand. D) policies that influence the rate of growth of the quantity of money in circulation.

Q: Consider the above figure. The equation for the saving function isA) S = 40 - 0.67Yd. B) S = 40 + 0.33Yd. C) S = -40 + 0.67Yd. D) S = -40 - 0.33Yd.

Q: Suppose that last year $1 U.S. exchanged for 1 euro. If this year $1 exchanges for 0.75 euro, then we can conclude thatA) the dollar is weaker this year than it was last year and this will cause the United Statesʹ short-run aggregate supply (SRAS) curve to shift to the left.B) the dollar is weaker this year than it was last year and this will cause the United Statesʹ short-run aggregate supply (SRAS) to shift to the right.C) the dollar is stronger this year than it was last year and this will cause the United Statesʹ short-run aggregate supply (SRAS) curve to shift to the left.D) the dollar is weaker this year than it was last year but this will have no impact on the United Statesʹ short -run aggregate supply (SRAS) curve.

Q: The approach to understanding the determination of real GDP and the price level that emphasizes flexible wages and prices and competitive markets isA) the classical model. B) the Keynesian model.C) Adam Smithʹs Law. D) the aggregate demand model.

Q: A rise in the price level has a direct effect on spending because A) people like to spend more when prices are higher. B) the real value of the money people have varies directly with the price level. C) the real value of the money people have decreases and they can buy less with it. D) a higher price gives people more money, and so the more goods and services they can buy.

Q: Economic growth tends to be higher in a country thatA) has a low saving rate.B) has an open economy that encourages the rapid spread of technology. C) has an undeveloped system of property rights.D) does not grant patents to investors.

Q: How do GDP and NDP differ? What does it mean if net investment is negative?

Q: Profits A) are a cost of doing business because entrepreneurs would not incur the risk of starting a business if they didnʹt expect to earn profits. B) are a cost of doing business because they are payments to others. C) are not a cost of doing business because they are owed to resource owners. D) are not a cost of doing business because they are often zero or negative.

Q: In 2009, policy makers in the United States were dealing with a recession. Workers who were laid off due to the economic slowdown would beA) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) seasonally unemployed.

Q: A nationʹs account with the International Monetary Fund is known asA) a quota subscription. B) monetary deposits.C) monetary rights. D) international reserves.

Q: According to the new Keynesian theory, the widespread importance of small menu costs results in variations in aggregate demand causing bothA) greater short-run adjustments in real GDP and delayed adjustment in the price level. B) greater short-run adjustments in the real GDP and immediate adjustment in the price level.C) smaller short-run adjustments in real GDP and delayed adjustment in the price level.D) smaller short-run adjustments in real GDP and immediate adjustment in the price level.

Q: Active policy making would include all of the following EXCEPT A) interest rate changes by the Fed.B) tax increases.C) unemployment insurance benefits.D) increased government spending by the Congress.

Q: The purchase of government bonds by the Fed leads to a(n)A) increase in the supply of bonds and a decrease in bond prices. B) decrease in the supply of bonds and an increase in bond prices.C) increase in the demand of bonds and a decrease in the price of bonds. D) decrease in the demand of bonds and an increase in the price of bonds.

Q: Among the liabilities of a bank are itsA) transaction deposits. B) total reserves. C) excess reserves. D) loans.

Q: The U.S. fiduciary monetary systemA) is the one agency responsible for providing coins and paper currency.B) is one where money is not convertible to a fixed quantity of gold. C) puts capital controls in place.D) controls the private banking system.

Q: How does the federal government finance a budget deficit? A) It redeems its IOUs. B) It purchases U.S. Treasury bonds. C) It cuts spending on entitlement programs. D) It borrows funds by selling Treasury bonds.

Q: An example of fiscal policy isA) a reduction in government spending.B) a reduction in investment spending by the private sector.C) an increase in autonomous spending by consumers. D) an increase in Social Security spending by the elderly.

Q: Consider the above figure. The equation for the consumption function is A) C = 40 + 60Yd. B) C = 40 + 50Yd. C) C = 40 + 0.33Yd. D) C = 40 + 0.1Yd.

Q: The significant run-up in oil prices during the latter 2000s was an example ofA) an aggregate demand shock that increased the price level and increased the rate of growth of real Gross Domestic Product (GDP).B) an aggregate demand shock that reduced the price level and reduced the rate of growth of real Gross Domestic Product (GDP).C) an aggregate supply shock that increased the price level and reduced the rate of growth of real Gross Domestic Product (GDP).D) an aggregate supply shock that reduced the price level and increased the rate of growth of real Gross Domestic Product (GDP).

Q: The condition of fully flexible wages and prices was assumed byA) the classical economists. B) the Keynesian economists. C) modern economists. D) no economists.

Q: One reason that the aggregate demand curve slopes downward is becauseA) higher price levels increase real wealth and consumption.B) higher price levels reduce net exports. C) higher price levels reduce interest rates. D) higher price levels increase investment.

Q: Other things being equal, an increase in consumption spending implies A) a decline in saving. B) a decline in government spending. C) a higher standard of living in the future. D) that economic growth will soon increase.

Q: Explain the two main methods used to measure GDP.