Q&A Hero

Q: The amount earned by owners of the nationʹs factors of production is A) the wages and fringe benefits received by the nationʹs workers. B) all profits received by businesses.C) total income.D) private and government transfer payments.

Q: Fred recently lost his job as a teller at the bank. The bank explained that they were replacingFrank and others with ATM machines. Fred falls into a category of unemployment known asA) frictional unemployment. B) structural unemployment.C) cyclical unemployment. D) seasonal unemployment.

Q: A nationʹs account with the International Monetary Fund is measured in an international unit known asA) international reserves. B) special drawing rights.C) monetary rights. D) monetary deposits.

Q: The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand wouldA) immediately reduce the price level, followed by a more sluggish decline in real GDP. B) immediately raise the price level, followed by a more sluggish decline in real GDP.C) immediately reduce real GDP, followed by a more sluggish decline in the price level.D) immediately raise real GDP, followed by a more sluggish increase in the price level.

Q: According to traditional Keynesians, monetary policy is ineffective in affecting the economy during a recession becauseA) an increase in the money supply will have little impact on interest rates. B) an increase in the money supply will only lead to higher interest rates.C) an increase in the money supply will only lead to lower investment spending. D) an increase in the money supply will raise the amount of government debt.

Q: A sale of bonds by the Fed generatesA) an increase in the demand for money balances. B) a decrease in the demand for money balances.C) an increase in the demand for bonds and a rise in bond prices. D) an increase in the supply of bonds and a fall in bond prices.

Q: If all of a bankʹs depositors showed up on one day requesting cash withdrawals of all their deposited funds, A) the bank would pay them all, although reluctantly. B) the bank would likely fail to have sufficient reserves to honor their requests. C) the bank could lawfully refuse their demands. D) the bank would immediately call all outstanding loans.

Q: A system in which money is issued by the government and its value is based uniquely on the publicʹs faith that the currency represents command over goods and services is theA) transactions approach. B) liquidity approach. C) fiduciary monetary system. D) transaction deposits.

Q: Which of the following is a stock variable?A) public debt B) wealthC) money supply D) all of the above

Q: To close a recessionary gap through fiscal policy, the government should A) decrease government spending in order to increase aggregate supply. B) increase government spending in order to increase aggregate demand. C) reduce taxes in order to stimulate investment, and thus increase aggregate supply. D) increase government spending and taxes in order to both increase aggregate demand and aggregate supply.

Q: Consider the above figure. At income level Yd = $110, the APS is equal toA) 0.64. B) 0.32 C) 1.10. D) -0.36.

Q: Inflation that is caused by an increase in aggregate demand which is not matched by an increase in aggregate supply is calledA) demand-push inflation. B) demand-pull inflation. C) cost-push inflation. D) cost-pull inflation.

Q: In a classical model, A) equilibrium real GDP is supply determined. B) equilibrium real GDP is demand determined. C) equilibrium real GDP is determined by both aggregate supply and aggregate demand. D) equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand.

Q: When a change in the price level causes a change in the purchasing power of currency, which then changes planned real expenditures at all income levels, it is calledA) the real-balance effect. B) the substitution effect. C) the open-economy effect. D) the interest rate effect.

Q: Other things being equal, a higher saving rateA) leads to higher interest rates.B) means higher standards of living in the future. C) means higher standards of living today.D) is associated with a decline in the rate of growth of the population.

Q: ʺIf we sum up all factor payments, we will get gross domestic income.ʺ Do you agree or disagree with this statement? Why?

Q: Total incomeA) is the yearly amount earned by owners of the nationʹs resources.B) includes only wages received by workers.C) includes only wages and interest payments.D) excludes profits.

Q: Unemployed U.S. residents who are, in effect, merely searching for work between jobs, are defined asA) frictionally unemployed. B) structurally unemployed.C) cyclically unemployed. D) seasonally unemployed.

Q: When a nationʹs currency suddenly loses value, the may step in to buy the afflicted currency.A) World Bank B) International Monetary FundC) Federal Reserve Bank D) United Nations

Q: A theory suggesting that price stickiness leads to sluggish short -run adjustment of the price level to variations in aggregate demand is known asA) new Keynesian flexible-price business cycles. B) new Keynesian inflation dynamics.C) real-business-cycle fixed-price business cycles. D) real-business-cycle inflation dynamics.

Q: According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supplyA) impacts the economy through the multiplier.B) impacts the economy by reducing the value of the U.S. dollar.C) impacts the economy by increasing the deficit. D) does not impact the economy.

Q: When the Fed conducts open market operations, itA) purchases or sells government bonds issued by the U.S. Treasury. B) is engaging in fiscal policy.C) also raises taxes at the same time.D) shifts the demand for money curve.

Q: The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?A) $200,000; $800,000 B) $800,000; $1 millionC) $800,000; $800,000 D) $800,000; 0

Q: In a fiduciary monetary system, money is backed byA) the publicʹs confidence that the assets will continue to be accepted as money. B) the intrinsic value of the materials used to make the assets.C) the assets of the institutions that issue the various assets used as money. D) gold.

Q: If the governmentʹs spending exactly equals its revenues during a budget year, that government isA) running a budget deficit. B) experiencing a budget surplus. C) balancing its budget. D) paying off its public debt.

Q: According to traditional Keynesian analysis, fiscal policy operates byA) informing consumers and business people about its plans for the economy so they will know how to adjust their behavior.B) indirectly affecting aggregate demand through its effect on interest rates. C) directly affecting aggregate demand.D) directly affecting aggregate supply.

Q: Consider the above figure. At income level Yd = $30, the APC is equal toA) 1.25. B) 1.67. C) 1.05. D) 0.05.

Q: Suppose aggregate demand is increasing over time. Would the modern Keynesian model assume that the price level would always be constant? Explain.

Q: Sayʹs law implies thatA) the willingness to purchase other goods is unrelated to the production of goods and services.B) producing goods and services generates the means and the willingness to purchase other goods and services.C) prices and wages are sticky downwards.D) wages and prices are inflexible.

Q: The interest rate effect operates throughA) credit markets by changing borrowing costs.B) the purchasing power of individualsʹ checking accounts.C) government spending levels. D) labor supply.

Q: The rate of economic growth will be faster if A) the rate of growth of the money supply is higher. B) the rate of saving is higher. C) the rate of growth of the population is higher. D) consumption spending is greater.

Q: What constitutes investment when measuring gross private domestic investment?

Q: Resources can be purchasedA) in the product markets. B) in the factor markets.C) exclusively through the government. D) at a grocery store.

Q: After completing college, John Smith spent two months looking for a job. During this period he would be classified asA) frictionally unemployed. B) not in the labor force.C) cyclically unemployed. D) structurally unemployed.

Q: The International Monetary Fund was created to achieve each of the following goals EXCEPT A) lend funds to countries with international payment problems.B) lend funds to large government infrastructure projects.C) monitor and offer advice on the exchange rate policies of member nations. D) encourage free convertibility of the currencies of member nations.

Q: Which of the following statements concerning price rigidity is true?A) Since the economy experiences continued inflation prices are not rigid.B) Prices will be rigid when there is unanticipated monetary policy but not when there is anticipated monetary policy.C) Data has clearly demonstrated that the long run aggregate supply curve is horizontal. D) When there are demand changes, firms will not change their price because of the costs associated with renegotiating contracts and informing customers of price changes.

Q: According to traditional Keynesians, when the central bank increases the money supply during a recessionA) people will spend all of the money on goods and services. B) people will borrow more from banks.C) people will keep most of it in their bank accounts.D) people will refuse to use the money.

Q: Open market operations by the Fed causeA) changes in the difference between the discount rate. and the federal funds rate. B) aggregate supply to change.C) the prices of bonds to change.D) changes in the required reserve ratio.

Q: A bank currently has $50 million in deposits, $6 million in cash in the vault, $4 million on deposit with the Fed, and $5 million in government securities. The reserve ratio is 20 percent. A new deposit is made of $1 million. What is the maximum size loan the bank can make once the check clears?A) 0 B) $800,000 C) $1 million D) $5.8 million

Q: An asset that can be easily disposed of without high transactions costs and with relative certainty as to its value isA) solid. B) liquid. C) M1. D) M2.

Q: Which of the following is NOT an example of a flow variable?A) planned investment B) capital stockC) The federal deficit D) inventory investment

Q: Fiscal policy involves discretionary changes in A) interest rates. B) exchange rates. C) income tax rates. D) the rate of growth of the quantity of money in circulation.

Q: Consider the above figure. At an income of $60 we would expect saving to be equal toA) $60. B) $40. C) $10. D) $0.

Q: According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because theA) aggregate demand curve is upward sloping.B) short-run aggregate supply curve is upward sloping. C) aggregate demand curve is upward horizontal.D) short-run aggregate supply curve is vertical.

Q: According to Sayʹs law,A) desired expenditures are always less than actual expenditures.B) desired expenditures are always more than actual expenditures. C) desired expenditures are always equal to actual expenditures.D) desired expenditures cannot be compared with actual expenditures.

Q: The discretionary change of government expenditures or taxes to achieve national economic goals isA) a recessionary gap. B) Ricardian-equivalence theorem. C) supply-side economics. D) fiscal policy.

Q: Assuming that Yd = $20,000 and C = $22,000, we would find that the average propensity to save equalsA) 0.9. B) 1.1. C) -0.1. D) -0.8.

Q: Consider the above figure. If the aggregate demand fell from AD 1 to AD2, our nation would be experiencingA) an inflationary gap. B) a recessionary gap. C) overemployment. D) rising prices.

Q: In the classical model, the aggregate supply curve isA) upward sloping in the short run but vertical in the long run. B) always vertical.C) the same as the aggregate supply curve in the Keynesian model.D) flat at low levels of output and then eventually slopes upward as output increases.

Q: The real-balance effect refers to A) the economyʹs response to interest rate changes. B) the change in the value of cash balances due to price level changes. C) the change in net exports. D) the economyʹs ability to balance recession and expansion.

Q: One important factor that affects economic growth is A) gold reserves. B) the rate of saving. C) which political party is in power. D) the number of workers in heavy industry.

Q: To calculate GDP once national income has been computed, we mustA) add indirect business taxes and transfers and subtract profits. B) add depreciation and subtract indirect business taxes.C) add depreciation and indirect business taxes and transfer payments and subtract other business income adjustments and net U.S. income earned abroad.D) add indirect business taxes and transfers and subtract depreciation, other business income adjustments, and net U.S. income earned abroad.

Q: The circular flow of income showsA) the dollar value of output is less than the total income.B) the dollar value of output is more than the total income because of the existence of profits.C) the dollar value of output is exactly equal to the total income.D) the dollar value of output is more or less than the total income, depending on whether profits are positive or negative.

Q: Corrina just graduated from college, is unemployed, and looking for her first real job. This is an example ofA) frictional unemployment. B) structural unemployment. C) seasonal unemployment. D) cyclical unemployment.

Q: A multinational agency that specializes in making loans to a larger number of developing nations to promote long -term development and growth isA) the International Bank. B) the World Bank.C) the International Monetary Fund. D) the World Monetary Fund.

Q: According to the new Keynesian sticky-price theory, a rise in aggregate demand results in price level in the near term and in price level in the longer term.A) a higher; an unchanged B) an unchanged; a higherC) a lower; an unchanged D) a lower; a higher

Q: According to Keynes, the impact of an increase in the money supply isA) a lower interest rate and a larger growth in real GDP.B) a lower interest rate and a smaller growth in real GDP.C) a higher interest rate and a larger growth in real GDP. D) a higher interest rate and a smaller growth in real GDP.

Q: The market prices of existing bonds areA) not related to the interest rate. B) directly related to the interest rate.C) inversely related to the interest rate. D) stated in terms of the interest rate.

Q: To reach the maximum money multiplier, it is assumed thatA) commercial banks keep the amount of reserves. equal to total bank deposits.B) all loans get redeposited in a checkable account. C) there is insufficient loan demand.D) loans are diverted into circulating currency.

Q: The cost of holding money isA) transactions accounts. B) the opportunity cost.C) the liquidity approach. D) capital controls.

Q: Suppose that the government of Springfield spends $2 trillion in 2011 and receives tax revenues of $1.5 trillion. Which of the following is true?A) Springfield has a budget surplus of $0.5 trillion. B) Springfield has a budget deficit of $0.5 trillion. C) Springfield has a trade deficit of $0.5 trillion.D) Springfield has a trade surplus of $0.5 trillion.

Q: Which of the following represent expansionary fiscal policy? A) a reduction in government spending B) an increase in average individual income tax rates C) a cut in corporate income tax rates D) an increase in marginal individual income tax rates

Q: Assuming that Yd = $20,000 and C = $22,000, we would find that the average propensity to consume would be equal toA) 0.9. B) 1.1. C) 1.8. D) 0.8.

Q: If the full-employment level of real GDP is greater than the equilibrium level of real GDP, the nation would be experiencing a(n)A) inflationary gap. B) recessionary gap. C) demand-pull inflation.D) rising prices.

Q: According to the classical model, an increase in aggregate demand would A) lead the economy to recession. B) lead the economy to a deflationary cycle. C) cause an adjustment to a higher price level. D) raise real Gross Domestic Product (GDP) but leave the price level unchanged.

Q: The real-balance effect implies that whenA) the price level decreases, the value of money balances held by individuals, firms, government, and foreigners increases and spending decreases.B) the price level increases, the value of money balances held by individuals, firms, government, and foreigners increases and spending increases.C) the price level increases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases.D) the price level decreases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases.

Q: Giving up consumption today for consumption tomorrow accelerates economic growth byA) having the economy produce no consumer goods.B) increasing saving out of disposable income. C) increasing the expected rate of inflation.D) rapid expansion of the money supply.

Q: The appropriate formula for computing Gross Domestic Product using the income approach (excluding depreciation and indirect income taxes) isA) consumption + investment + government spending + net exportsB) wages + rent + interest + profitsC) wages + rent + interest + profits + indirect business taxesD) wages + rent + interest + profits + indirect business taxes + depreciation

Q: The circular flow of income involves the idea thatA) in every economic exchange one party takes advantage of the other party. B) the seller of a good receives less than the buyer spends.C) the seller of a good receives more than the buyer spends.D) the seller of a good receives exactly the same amount as the buyer spends.

Q: A person who is employed in the construction industry may frequently experienceA) frictional unemployment. B) structural unemployment.C) seasonal unemployment. D) technological unemployment.

Q: The specializes in making long-term loans for capital investment projects that do not have private financial support.A) International Monetary Fund B) European Central BankC) World Bank D) Federal Reserve Bank

Q: The term for a pattern of initially sluggish adjustment of the equilibrium price level to a change in aggregate demand followed by a greater adjustment in the future isA) real-business-cycle inflation dynamics. B) New Keynesian inflation dynamics. C) passive price dynamics. D) active price dynamics.

Q: An increase in the rate of growth of potential real GDP willA) cause the neutral federal funds rate to decrease. B) cause the neutral federal funds rate to increase. C) have no effect on the neutral federal funds rate.D) have an ambiguous effect on the neutral federal funds rate.

Q: If the Fed decides to buy bonds, the result will be A) lower bond prices and lower interest rates. B) lower bond prices and higher interest rates. C) higher bond prices and lower interest rates. D) higher bond prices and higher interest rates.

Q: Other things being equal, if the reserve ratio is raised from 10 percent to 20 percent, A) minimum potential value of the money multiplier rises from 0.10 to 0.20.B) minimum potential value of the money multiplier falls from 100 to 50. C) maximum potential value of the money multiplier rises from 10 to 20. D) maximum potential value of the money multiplier falls from 10 to 5.

Q: The opportunity cost of holding money A) is measured by the alternative interest yield obtainable by holding some other asset. B) is based on the fiduciary monetary system. C) refers to the amount of paper currency held by the Fed. D) refers to the Fedʹs role as the lender of last resort.

Q: In the current year, a nationʹs government spending equals $1.5 trillion and its revenues are $1.9 trillion. Which of the following is true?A) The nationʹs national debt equals $0.4 trillion.B) This nation has a current year budget surplus of $0.4 trillion.C) This nation is currently running a budget deficit of $0.4 trillion. D) The nation has a current year trade surplus of $0.4 trillion.

Q: Fiscal policy is implemented byA) the central bank. B) private businesses.C) the Internal Revenue Service. D) the federal government.

Q: According to Keynes, the most important determinant of an individualʹs real saving isA) interest rates. B) the foreign exchange rate.C) the individualʹs real disposable income. D) the level of investment.

Q: A recessionary gap results whenA) aggregate demand is below the level consistent with full employment. B) aggregate demand is above the level consistent with full employment.C) aggregate supply and aggregate demand are not in short -run equilibrium. D) aggregate supply decreases.