Q&A Hero

Q: According to classical theory, a shift in aggregate demand will affectA) the price level only.B) real Gross Domestic Product (GDP) only. C) the level of employment only.D) both real Gross Domestic Product (GDP) and the level of employment.

Q: According to the interest rate effect, an increase in the price level, if other factors are held constant, will lead toA) a reduction in total real spending on interest -rate-sensitive goods. B) an increase in the stock of real wealth held by the public.C) an outward shift of the aggregate demand curve. D) an increase in the real interest rate.

Q: Explain the relationship between economic growth and labor productivity.

Q: Given the following data, calculate the GDP. wages = $500 government spending= $2,500 private investment = $2,100 rent= $100 consumer spending= $7,800 net exports = $-400A) GDP = $11,400 B) GDP = $12,000 C) GDP = $12,400 D) GDP = $13,000

Q: In the circular flow, provide the factor services.A) households B) businessesC) producers D) businesses and households

Q: Reductions in employment in the U.S. auto industry caused by the increased adoption of new technologies to produce cars more efficiently is an example ofA) cyclical unemployment. B) frictional unemployment. C) seasonal unemployment. D) structural unemployment.

Q: The goal of the World Bank is toA) supervise exchange rate stability.B) supervise the activities of the central banks of member nations.C) sell the government securities of member nations on the open market. D) help finance economic development.

Q: In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is A) initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future. B) initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. C) initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future. D) initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

Q: The value of the neutral federal funds rate in the United StatesA) has consistently risen over time.B) has consistently decreased over time. C) is determined by the Federal Reserve.D) depends on the speed at which the economyʹs long-run aggregate supply increases over time.

Q: If the Fed sells bonds through its open market operations, then there isA) an increase in the demand for bonds and a rise in the price of existing bonds.B) an increase in the supply of bonds and a fall in the price of existing bonds. C) a decrease in interest rates because of the increase in the supply of bonds.D) a decrease in interest rates because of the decrease in the demand for bonds.

Q: The reserve ratio is 10 percent. If the bank receives a customer deposit of $100,000, then an immediate effect isA) a reduction in the bankʹs total assets of exactly $10,000.B) a reduction in the bankʹs total liabilities of exactly $10,000. C) no change in the bankʹs total assets or total liabilities.D) an increase in the bankʹs reserves of exactly $10,000.

Q: The liquidity of money refers toA) the amount of gold it is backed by.B) the standard of deferred payments and how quickly those payments can be made.C) how quickly it can be disposed of without high transaction costs. D) asymmetric information.

Q: According the traditional Keynesian approach, an increase in government spending is effective in lowering unemployment if A) the price level is fixed. B) the price level is flexible. C) the price level does not exist. D) Ricardian equivalence occurs, regardless of the price level.

Q: All the following actions represent fiscal policy EXCEPT A) a reduction in the money supply by the Federal Reserve. B) an increase in government spending. C) a reduction in individual income tax rates. D) an increase in corporate income tax rates.

Q: Which one of the following would shift your consumption function in an upward direction?A) an increase in your wealthB) a decrease in your wealthC) an increase in your real disposable incomeD) a decrease in your real disposable income

Q: Which of the following actions would cause the aggregate demand curve to shift to the left?A) an increase in consumer spending caused by a cut in the personal income tax rateB) an increase in government spending caused by increased spending on highways and bridge constructionC) a decrease net export spending caused by an appreciation of the home currencyD) an increase in exports caused by an increase in economic activity in the European Union

Q: According to the classical theory, an inward shift in aggregate demand would reduce A) real Gross Domestic Product (GDP) and the price level. B) the price level but have no effect on real Gross Domestic Product (GDP). C) real income but have no impact on the price Gross Domestic Product (GDP). D) the price level but increase real Gross Domestic Product (GDP).

Q: The aggregate demand curve shows that, if other factors are held constant, A) higher price levels will result in lower total planned spending.B) higher price levels will result in higher total planned spending. C) higher price levels will result in lower interest rates.D) lower price levels will result in inflationary conditions.

Q: Which of the following contributes to economic growth? A) increase in labor productivity B) increase in consumer spending C) increase in labor regulations restricting the hours of overtime allowed D) increase in environmental protection policies

Q: What is the proper formula for computing the GDP using the expenditure approach?A) S + I + G + X B) C + I + G + X C) C + O + G + S D) 0.5(w + r) + k

Q: How do economists view profits?A) Profits are an asset the business holds.B) Profits are one of the costs paid to a factor of production. C) Profits are guaranteed as long as a firm operates ethically.D) The firmʹs profit equals the sum of all payments to the 5 factors of production.

Q: The United States experienced a deep recession between 2007 and 2009. Which type of unemployment would most likely increase during that period of recession?A) cyclical unemployment B) frictional unemploymentC) seasonal unemployment D) structural unemployment

Q: The World Bank primarily engages inA) short-term lending aimed at helping developing nations repay debt accumulated in past years.B) short-term lending aimed at helping developing nations repay loans from the International Monetary Fund.C) long-term lending aimed at helping developing nationsʹ governments and central banks keep exchange rates from varying.D) long-term lending aimed at helping developing nationsʹ governments and businesses make investments that will contribute to economic growth.

Q: The menu cost theory suggests that A) there will be no unemployment. B) wages and prices move freely and quickly. C) firms find frequent price changes to be costly. D) the economy is characterized only by perfect competition.

Q: Changes in which of the following would most likely NOT affect the neutral federal funds rate?A) the money supply B) potential real GDPC) technology D) aggregate supply shocks

Q: If the Fed purchases U.S. government securities in the open market, all of the following would occur EXCEPTA) an expansion of the money supply.B) an increase in investment. C) a fall in bond prices.D) an increase in real Gross Domestic Product (GDP).

Q: Following a new deposit of $500, the loans of a commercial bank increase by $400. In this situation, the reserve ratio is most likelyA) 0 percent. B) 20 percent. C) 80 percent. D) 180 percent.

Q: Which of the following is the most liquid?A) certificate of deposit B) cashC) checkable and debitable account D) stocks and bonds

Q: When government revenues exceed government outlays in a particular year, this is calledA) a budget surplus. B) a budget deficit. C) the national debt. D) fiscal policy.

Q: Discretionary fiscal policy isA) automatic changes in government expenditures and interest rates that achieve certain national economic goals.B) deliberate changes in government expenditures or taxes in order to achieve certain national economic goals.C) used to achieve full employment by changing monetary growth targets.D) changes in support for research and education in order to achieve certain national economic goals.

Q: At the point at which planned real consumption spending is equal to real disposable incomeA) the consumption function is above the 45-degree line. B) the consumption function is below the 45 -degree line. C) the consumption function intersects the 45-degree line.D) the consumption function intersects the savings function.

Q: If the equilibrium level of real GDP per year is greater than the full-employment level of GDP, thenA) a recessionary gap occurs.B) the economy is at full employment with no price changes.C) the economy expands the level of real GDP. D) an inflationary gap occurs.

Q: In the classical model, a shift to the right in aggregate demand would result inA) a permanent increase in unemployment.B) a permanent increase in real incomes. C) an increase in the price level.D) a permanent shift past full employment.

Q: At each price level, the aggregate demand curve indicatesA) the nominal value of total production of goods and services domestic income that will be produced.B) the total amount of real planned expenditures.C) the nominal Gross Domestic Product (GDP) that will be produced.D) the total amount of real Gross Domestic Product (GDP) that will be produced.

Q: Improvements in information technology over the past decade have enhanced labor productivity. What has been a likely result of this change?A) Capital productivity has declined. B) Unemployment has increased.C) The rate of economic growth has increased.D) Entrepreneurs no longer have an incentive to invest in information technology.

Q: The two main approaches to measuring GDP are theA) concept approach and the reality approach.B) flow approach and the stock approach.C) government approach and the consumer approach.D) income approach and the expenditure approach.

Q: Profits representA) the income earned from a bond.B) the payments firms make to their employees. C) a reward to entrepreneurs.D) the difference between total tax revenue and total government spending.

Q: A recession causes a decrease in the demand for housing, resulting in substantial layoffs in the construction industry. This is an example ofA) cyclical unemployment. B) frictional unemployment.C) seasonal unemployment. D) structural unemployment.

Q: One of the major criticisms of the World Bank is that it lends funds A) to impoverished nations. B) to countries which could easily borrow funds from other sources. C) to industrialized nations. D) to terrorist groups not affiliated with any country.

Q: Some economists suggest that because of the costs of negotiating contracts, printing price lists, etc., it is costly for firms to change prices in response to demand changes. This hypothesis is known as theA) sticky wage theory. B) menu cost theory.C) Phillips theory. D) Freidman theory.

Q: The Taylor rule implies that the Fed should set the federal funds target based on which of the following?A) an estimated long-run real interest rateB) the current deviation of the actual inflation rate from the Fedʹs inflation objectiveC) the proportionate gap between actual real GDP and a measure of potential real GDP D) all of the above

Q: An increase in the money supply typically leads toA) a reduction in the rate of interest. B) a decrease in the price level.C) a reduction in the velocity of money. D) an inward shift in money demand.

Q: Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans ofA) $0. B) $20. C) $80. D) $400.

Q: An asset is liquid if it A) is of intrinsic value. B) can be exchanged for other goods and services. C) is a store of value. D) can be obtained or disposed of without losing much of its nominal value.

Q: If the price level is fixed, then an increase in government spending will lead toA) a larger increase in nominal GDP than in real GDP. B) a smaller increase in nominal GDP than in real GDP. C) no increase in either nominal GDP or real GDP.D) an increase in nominal GDP by the same amount as an increase in real GDP.

Q: According to traditional Keynesian economics, expansionary fiscal policy initiated by the federal governmentA) is never appropriate.B) is an appropriate way to prevent recessions and depressions.C) is an appropriate way to slow down an over -heated economy. D) will always fail due to crowding out effects.

Q: Income SavingsReal Disposable Income per YearPlanned Real Consumption per Year$0$1,0001,0001,8002,0002,6003,0003,4004,0004,2005,0005,0006,0005,8007,0006,6008,0007,4009,0008,20010,0009,000In the above table, the average propensity to consume when income is $10,000 isA) 0.8. B) 0.2. C) 0.0. D) 0.9.

Q: In the above figure, what could cause the shift of aggregate demand from AD1 to AD2?A) depletion of raw materialsB) an increase in input pricesC) a decrease in consumer confidenceD) an increase in international trade barriers

Q: Suppose an economy originally in long -run equilibrium experiences a decrease in aggregate demand. According to the classical model,A) real Gross Domestic Product (GDP) will not change but the price level will fall.B) real Gross Domestic Product (GDP) will fall, and then the price level will fall also.C) the price level will not change but real Gross Domestic Product (GDP) will fall.D) real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same.

Q: Which of the following is NOT a reason for the slope of the aggregate demand curve?A) The substitution effect B) The real balance effectC) The interest rate effect D) The open-economy effect

Q: Whenever average output produced per worker during a specific time -period increases, thenA) leisure time increases. B) nominal GDP decreases.C) labor productivity increases. D) the standard of living goes down.

Q: Gross domestic income can be defined asA) the sum of all incomes earned by all factors of production in a year.B) the sum of all incomes earned by individuals.C) the sum of all profits earned by businesses in a year.D) the sum of all profits earned minus depreciation.

Q: Economists consider profit to be A) a cost of producing goods and services. B) the same as a salary. C) a reward for incurring losses. D) something that should be eliminated by antitrust laws.

Q: A cutback in the space program due to a slow economy causes an increase in unemployment among aeronautical engineers. This is an example of A) cyclical unemployment. B) frictional unemployment. C) seasonal unemployment. D) structural unemployment.

Q: Most of the loanable funds available to the World Bank to lend to developing nations come from A) the sale of oil. B) developing nations. C) the worldʹs wealthiest nations. D) the sale of international bonds that are issued by the World Bank.

Q: The menu cost theory states thatA) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change.B) economic agents quickly learn the likely responses of the Fed to changes in unemployment.C) wages depend on the productivity of workers.D) the economy is characterized by perfect competition.

Q: Suppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies thatA) monetary policy will tend to produce that inflation rate.B) monetary policy is contractionary. C) monetary policy is expansionary.D) fiscal policy will result in a balanced budget.

Q: Which of the following will lead to a decrease in the price of existing bonds? A) A decrease in the rate of interest B) An inward shift in money demand C) A decrease in planned investment spending D) A reduction in the money supply

Q: Which of the following actions has no effect on the total money supply?A) The Federal Open Market Committee buys government securities. B) The Federal Open Market Committee sells government securities. C) There is a transfer of deposits from one bank to another bank.D) There is change in the money multiplier.

Q: Money is still useful during times of inflation because A) it still retains the characteristic of predictability of value. B) more money can be made so people can still purchase the goods and services they want. C) it is not a liquid asset. D) its opportunity cost falls as inflation rises.

Q: The Keynesian approach assumes that A) there is no unemployment in the economy. B) the economy is self-regulating. C) the government budget is always in deficit. D) the price level is fixed.

Q: Fiscal policy to solve short-run economic problems supports the Keynesian notion ofA) there being no government role in the economy.B) an active government role in the economy.C) the need for autocratic rule.D) the long-run nature of the economy.

Q: Real Disposable Income per YearPlanned Real Consumption per Year$0$1,0001,0001,8002,0002,6003,0003,4004,0004,2005,0005,0006,0005,8007,0006,6008,0007,4009,0008,20010,0009,000In the above table, the average propensity to save when disposable income is $5,000 isA) 0.2. B) 0.1. C) 0.0. D) -0.1.

Q: In the above figure, if the relevant aggregate demand curve is AD 2, what type of gap exists and how large is it?A) inflationary gap of $500 billion B) inflationary gap of $1 trillionC) recessionary gap of $1 trillion D) recessionary gap of $500 billion

Q: In the classical model, real Gross Domestic Product (GDP) per year isA) due to supply conditions plus the extent of government intervention in the economy.B) determined by supply and demand conditions together. C) supply determined.D) demand determined.

Q: The horizontal axis for an aggregate demand curve measuresA) quantity demanded of the representative good. B) real Gross Domestic Product (GDP).C) output of all goods and services measured as a quantity index. D) disposable personal income.

Q: By dividing the value of total domestic output (real Gross Domestic Product (GDP)) by the number of workers, economists deriveA) the net domestic product. B) labor productivity.C) the size of the labor force. D) the rate of capital accumulation.

Q: Using the expenditure approach to deriving gross domestic product, if U.S. imports rise and exports remain the sameA) GDP rises. B) GDP remains the same.C) GDP falls. D) GDP indicates a recession.

Q: In the circular flow model, profits are considered to be A) a subtraction from the Gross Domestic Product (GDP). B) a cost of doing business. C) equal to zero, or else the circular flow would be out of balance. D) a form of interest payment.

Q: When the automobile replaced the horse as the primary means of transportation, the unemployment rate of blacksmiths increased. This was an example ofA) cyclical unemployment. B) frictional unemployment. C) seasonal unemployment. D) structural unemployment.

Q: The World Bank specializes in making loans toA) industrialized nations. B) communist nations. C) developing nations. D) African nations.

Q: Which of the following can help explain why prices might be ʺstickyʺ?A) The rational expectations hypothesis B) The policy irrelevance propositionC) Real business cycles D) Small menu costs

Q: Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies thatA) monetary policy is expansionary. B) monetary policy is contractionary.C) monetary policy is neither expansionary or contractionary. D) fiscal policy is expansionary.

Q: An excess quantity of money demanded will lead to a rise inA) the interest rate. B) investment. C) income. D) bond prices.

Q: Which of the following would NOT be an asset on a bankʹs balance sheet?A) Loans outstanding B) Bank buildingC) Cash in the vaultD) Transactions deposits

Q: When the price level goes up, the purchasing power of the dollarA) also increases. B) falls.C) remains constant.D) varies directly with the value of the euro.

Q: According to the traditional Keynesian approach, if the government increases spending by $5 million and raises current taxes by $5 million at the same time, thenA) real GDP will increase by $5 million. B) real GDP will decrease by $5 million.C) real GDP will decrease by more than $5 million. D) real GDP will remain the same.

Q: Typical goals for fiscal policy are A) high employment and price stability. B) high prices for consumers and low prices for businesses. C) running high deficits and raising consumer prices. D) increasing the money supply so the government can spend more.

Q: Real Disposable Income per YearPlanned Real Consumption per Year$0$1,0001,0001,8002,0002,6003,0003,4004,0004,2005,0005,0006,0005,8007,0006,6008,0007,4009,0008,20010,0009,000In the above table, the marginal propensity to save when disposable income changes from $1,000 to $2,000 isA) 0.1. B) 0.2. C) 0.8. D) -0.2.

Q: In the above figure, if the relevant aggregate demand curve is AD 2, what are the short-run equilibrium price level and real GDP?A) 130 and $12 trillion B) 130 and $11.5 trillionC) 120 and $11.5 trillion D) 120 and $12 trillion