Q&A Hero

Q: In the classical model, the aggregate supply curve isA) upward sloping. B) downward sloping.C) horizontal. D) vertical.

Q: The aggregate demand curve is usuallyA) vertical. B) upward sloping. C) downward sloping. D) horizontal.

Q: Labor productivity can be increased withA) education and training of the workforce. B) an increase in capital goods used.C) improvements in management. D) all of the above

Q: The expenditure approach to deriving gross domestic product sums the following categories of spending:A) consumption, investment, government spending, and net exports. B) consumption, income, government spending, and net exports.C) consumption, savings, investment, and government spending.D) consumption, government spending, transfer payments, and net exports.

Q: In the simple circular flow model,A) households spend the income they receive from labor services but save the income they receive from selling the other factors of production.B) businesses buy labor services from households, but supply other factors of production themselves.C) households spend their entire income on consumer products. D) profits are a type of income that is not received by households.

Q: A person graduates from college, then starts to look for a job. This is an example of A) cyclical unemployment. B) frictional unemployment. C) seasonal unemployment. D) structural unemployment.

Q: The World Bank was formed inA) 1919. B) 1945. C) 1960. D) 1980.

Q: During the 1960s, many Keynesian economists felt that by studying the Phillips curve, A) policy makers could dispense with the Federal Reserveʹs open-market operations.B) policy makers could fine-tune the economy by selecting policies that would produce the exact mix of unemployment and inflation that suited current government objectives.C) the President and Congress did not need to attempt to balance the budget.D) policy makers could eliminate even frictional unemployment in the economy.

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

Q: The price of bonds and the interest rate areA) inversely related. B) positively related.C) unrelated. D) related, but we are not sure how.

Q: A statement of assets and liabilities of any business entity is calledA) an income statement. B) a cash flow statement.C) a balance sheet. D) a statement of net worth.

Q: The purchasing power of the dollarA) varies directly with the price of gold.B) varies directly with the purchasing power of other major currencies such as the euro and the Japanese yen.C) varies directly with the price level. D) varies inversely with the price level.

Q: According to the traditional Keynesian analysis, if the government increases spending and pays for all of it by raising current taxes, thenA) aggregate demand will decrease. B) a budget deficit will occur.C) a budget surplus will occur. D) aggregate demand will increase.

Q: Which of the following is a discretionary fiscal policy action?A) an increase in the amount of unemployment compensation because more people become unemployedB) a progressive tax system that leads to an increase in income tax revenues during an economic boomC) a deliberate tax cut when the economy experiences high unemploymentD) an increase in Supplemental Security Income payments when more people become eligible for the benefits

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 consume when disposable income changes from $5,000 to $6,000 isA) 0.8. B) 0.75. C) 0.6. D) 0.5.

Q: In the above figure, what are the long-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

Q: According to classical theory, total employment and real Gross Domestic Product (GDP) areA) unrelated. B) positively related.C) inversely related. D) negatively related.

Q: The aggregate demand curve plotsA) desired expenditures against production.B) total expenditures against the level of employment.C) planned expenditures against the price level. D) employment against the price level.

Q: Labor productivity measuresA) the growth of per capita real GDP. B) the growth of real output.C) real output per labor hour. D) the growth in the quantity of labor.

Q: Net exports for the United States A) are always positive numbers. B) may be negative.C) are a result of decreasing investment in the manufacturing industries.D) are a result of decreasing domestic consumption.

Q: The circular flow of income showsA) goods, services, and money payments flowing in the same direction.B) goods and money payments flowing in one direction and services flowing in the opposite direction.C) goods and services flowing in one direction and money payments in the other direction.D) goods flowing in one direction and services and money payments flowing in the other direction.

Q: Which of the following statements is true about the seasonally adjusted unemployment rate?A) The seasonally adjusted unemployment rate is the sum of the frictional unemployment rate, structural unemployment rate, and cyclical unemployment rate.B) The seasonally adjusted unemployment rate shows how the unemployment rate fluctuates with the various seasons.C) The seasonally adjusted unemployment rate is the same as the natural rate of unemployment.D) The seasonally adjusted unemployment rate is the rate computed for Fall, Spring, Summer and Winter.

Q: Those who advocate a role for the World Bank in establishing systems of well -defined property and contract rights in developing nations would argue thatA) such changes would eliminate the need for long -term capital funding. B) such changes would eliminate the need for short -term loans.C) such changes would make these economies more productive.D) asymmetric information is currently not a problem in these countries.

Q: Costs that deter firms from changing prices in response to demand changes are known asA) sticky costs. B) menu costs.C) policy costs. D) production costs.

Q: Between 2003 and 2008, the actual federal funds rateA) tended to be lower than the rates predicted by the Taylor rule.B) tended to higher than the rates predicted by the Taylor rule. C) followed closely the rates predicted by the Taylor rule.D) moved in directions opposite to the rates predicted by the Taylor rule.

Q: If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate rises to 6 percent,A) the market price of the bond is still $1,000.B) the bondʹs annual interest payment remains equal to $50.C) the market price of the bond has increased. D) the market price of the bond has decreased.

Q: Fractional reserve banking refers to a system in which the depository institutionA) holds reserves equal to its deposits. B) holds reserves greater than its deposits.C) holds reserves less than its deposits. D) holds zero reserves.

Q: The purchasing power or value of moneyA) is determined by law. B) varies inversely with the price level.C) depends on the value of gold. D) varies inversely with the interest rate.

Q: The balanced-budget multiplier is equal toA) the percentage increase in government expenditures.B) the reciprocal of the increase in government expenditures.C) the percentage increase in taxes. D) 1.

Q: Which of the following is an example of a discretionary fiscal policy action?A) increasing government spending to deal with a recession B) a decrease in tax revenues as taxpayersʹ incomes decrease C) increasing the minimum wage rateD) raising regulations in the health care industry

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, dissaving occurs at every level of income belowA) $10,000. B) $8,000. C) $7,000. D) $5,000.

Q: In the short run, if aggregate demand shifts to the left while the position of the short -run aggregate supply curve does NOT change, thenA) the level of economic activity rises. B) a recessionary gap occurs.C) there is no change in real GDP and the price level.D) an inflationary gap occurs.

Q: In the classical model, what occurs if a wage of $20/hour results in unemployed workers?A) The workers will go on strike to demand that more jobs be created.B) Producers will quickly create more jobs and hire the unemployed workers, so unemployment is short-lived.C) The wage rate will drop, more workers will be hired, and the unemployment rate falls.D) The government will step in and order firms to hire more workers.

Q: The sum of all planned expenditures for the entire economy at each possible price level isA) aggregate supply. B) effective demand.C) aggregate demand. D) actual expenditures by consumers.

Q: Labor productivity can be increased if A) people spend less time developing skills before entering the workforce. B) the government mandates it. C) there is an increase in capital goods. D) the standard of living declines.

Q: Inventory investment can be defined asA) changes in the stocks of finished goods and raw materials.B) the system of accounts that is used to count certain goods.C) goods that must be excluded from the GDP to avoid double counting.D) the value of monetary transactions by businesses.

Q: One of the principles behind the concept of the circular flow is that A) in every economic exchange, the seller receives exactly the same amount that the buyer spends. B) in every economic exchange, the seller receives less than the amount that the buyer spends. C) the seller of goods receives exactly the same amount that the buyer spends, but the seller of resources receives less than the buyer spends. D) in exchange involving products, the seller receives less than the amount the buyer spends, but in resource markets the seller receives more than the buyer spends.

Q: The seasonally adjusted unemployment rateA) reports only seasonal unemployment.B) removes the seasonal variation from the unemployment rate.C) is impossible to compute since no one knows what the seasonal component equals. D) is another name for structural unemployment.

Q: The official mission of the World Bank is toA) fight global inflation.B) advise member nations on the appropriate levels of taxation.C) establish exchange rates between the currencies of member nations.D) provide funding for needed development projects that would have difficulty attracting private investment.

Q: According to economists who promote sticky-price theories, A) only fiscal policy is an effective stabilization policy.B) only monetary policy is an effective stabilization policy.C) both fiscal and monetary policy can be effective stabilization policies. D) neither fiscal nor monetary policy is an effective stabilization policy.

Q: Suppose the actual equilibrium federal funds rate is below the rate implied by a particular inflation goal. In this situation, the Taylor rule implies thatA) fiscal policy is contractionary. B) fiscal policy is expansionary.C) monetary policy is expansionary. D) monetary policy is contractionary.

Q: If a bond sells for $2,000 and pays $200 per year in interest, the interest rate on the bond isA) 20 percent. B) 10 percent. C) 5 percent. D) 100 percent.

Q: Fractional reserve banking is a system in whichA) depository institutions pay a fraction of advertised interest rates.B) a fraction of banking services must be provided by depository institutions. C) depository institutions hold a fraction of total deposits in reserve.D) the money supply is a set fraction of the U.S. gold reserves.

Q: Money in a fiduciary monetary system is backed by A) gold. B) the publicʹs confidence that the assets will continue to serve as money. C) the intrinsic value of the materials used to make the assets that serve as money. D) assets owned by the government that are intrinsically valuable.

Q: In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the governmentʹs action real GDP by .A) decreases; $100 billion B) decreases; $20 billionC) decreases; $80 billion D) has no effect on; $0

Q: Fiscal policy is defined asA) the design of a tax system to transfer income from the rich to the poor. B) the use of Congressional power to pursue social and political goals.C) the discretionary changing of government expenditures and/or taxes to achieve national economic goals.D) the use of the taxing power of the government to redistribute wealth in a socially acceptable manner.

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 level of autonomous consumption isA) $0. B) $1,000.C) $5,000. D) $9,000.

Q: If the U.S. government were to relax its restrictions on offshore oil well drilling and open drilling in Alaskan national parks, the result to aggregate supply would be toA) cause a shift in the SRAS to the left. B) cause a shift in the LRAS to the left. C) cause no long-term shifts in AS.D) cause a shift in both LRAS and SRAS to the right.

Q: According to classical theory, full employment in the labor market occurs A) whenever aggregate demand is less than aggregate supply. B) at a wage rate at which quantity demanded equals quantity supplied. C) only when the economy has just experienced a demand shock. D) only when actual expenditures are greater than desired expenditures.

Q: What is measured on the horizontal axis of the aggregate demand/aggregate supply model?A) Prices B) Real Gross Domestic Product (GDP)C) Real wealth D) Nominal income

Q: Labor productivity is defined as A) the amount of output per worker. B) the amount of input per worker. C) the amount of workers per unit of input. D) the increase in output per unit of machinery.

Q: Which one of the following is true?A) Net investment is negative when gross investment is greater than depreciation.B) Our productive capacity declines when net investment is less than zero. C) Negative net investment occurs when imports are less than exports.D) Negative net investment occurs when exports are less than imports.

Q: According to the circular flow, the value of total output produced and total incomeA) should differ by the value of intermediate goods.B) should increase by the unanticipated rate of inflation.C) will always be increasing in a capitalist economy.D) will be equal.

Q: Seasonal unemployment isA) due to the fact that workers must search for appropriate job offers.B) a result of a poor match of workerʹs abilities and skills with current requirements of employers.C) a result of business recessions that occur when aggregate demand is insufficient to create full employment.D) a result of the seasonal pattern of work in specific industries.

Q: How did the original focus of the IMF differ from that of the World Bank?A) The IMF provided short-term loans and the World Bank provided long -term loans. B) The IMF assisted wealthy nations and the World Bank assisted developing nations. C) The IMF gave grants to developing countries and the World Bank made loans.D) The IMF dealt in North and South America only, and the World Bank dealt with the rest of the world.

Q: Describe and explain the policy irrelevance proposition.

Q: Which Federal Reserve Bank now regularly tracks target levels for the federal funds rate predicted by a basic Taylor-rule equation?A) Boston B) Chicago C) New York D) St. Louis

Q: An increase in bond prices will most likely result inA) an increase in interest rates.B) a decrease in the quantity demanded of money. C) an increase in the quantity demanded of money.D) an increase in the opportunity cost of holding money.

Q: The concept of holding reserves, such as gold, that are less than the value of the total depositsA) is known as fractional reserve banking.B) has been illegal since the passage of the Financial Services Modernization Act of 1999.C) is known as non-credit banking. D) None of the above are correct.

Q: Transactions deposits includeA) credit cards. B) certificates of deposit.C) lines of credit. D) checkable and debitable accounts.

Q: In Country Z, the government simultaneously increases its expenditures by $25 billion and increases taxes by $25 billion. If the MPS is equal to 0.2, the governmentʹs action real GDP by .A) increases; $125 billion B) increases; $25 billionC) increases; $100 billion D) has no effect on; $0

Q: Which of the following is NOT a fiscal policy action? A) increasing government expenditures on military hardware B) decreasing government spending on the arts C) raising the quantity of money in circulation D) lowering income tax rates

Q: Which one of the following is true?A) APC + MPS = 1B) APC + APS = 1C) MPS + APS = 1 D) APC * APS = 1

Q: An inflationary gap is the amount by whichA) total planned production exceeds total planned real expenditures in the long run.B) the short-run equilibrium level of nominal GDP is above the short-run level of real GDP. C) the short-run equilibrium level of nominal GDP is below the short-run level of real GDP. D) the short-run equilibrium level of real GDP is above the full-employment level of real GDP.

Q: With respect to unemployment, the classical model states thatA) unemployment of any kind cannot exist. B) only voluntary unemployment exists.C) unemployment fluctuates with the interest rate.D) involuntary unemployment will always exceed voluntary unemployment.

Q: Aggregate demand reflects A) planned total spending in the economy. B) planned total production in the economy. C) both spending and production in the economy. D) planned demand for consumer goods only.

Q: The formula for the computation of labor productivity isA) real GDP/population. B) real GDP/number of workers.C) nominal GDP/population. D) nominal GDP/number of workers.

Q: Why are exports added to (rather than subtracted from) the other expenditure components to arrive at GDP using the expenditure method?A) because exports account for those goods that were produced in the economy but that were not devoted to domestic consumption, used for domestic investment, or provided as government goodsB) because exports have a higher profit margin for manufacturers than do similar products sold in domestic marketsC) because exported goods are not valued properly, due to problems with the purchasing power parity indexD) because it is only through exporting that we can generate jobs in our own economy

Q: Which of the following is consistent with the circular flow of income?I. Goods and services flow in one direction.II. Payments and incomes flow in one direction.III. Sellers receive less than what buyers spend.A) I only B) II only C) III only D) Both I and II

Q: Cyclical unemployment is caused byA) technological change.B) fluctuations in the business cycle.C) a dynamic economy in which people want to switch jobs sometimes. D) predictable shifts in production associated with different seasons.

Q: Special drawing rights areA) the reserves held by members of the European Union to back their accounts with the European Central Bank.B) credit accounts held by individual stockholders with portfolio investments in other countries.C) international units of account held by the International Monetary Fund for member countries.D) the estimated level of oil reserves remaining in OPEC countries.

Q: Explain the rational expectations hypothesis.

Q: According to the Taylor rule, the Fed will set the federal funds rate 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: Which of the following actions by the Fed would lead to an increase in the money supply? A) An increase in the required reserve ratio B) An increase in the differential between the discount rate and the federal funds rate C) An increase in tax rates D) The purchase of government securities

Q: A system in which depository institutions hold reserves that are less than the amount of total deposits isA) a fractional reserve banking system. B) a percentage reserve banking system. C) a ratio reserve banking system. D) a legal reserve banking system.

Q: A fiduciary monetary system is A) fully backed by gold. B) dependent on barter for exchanges of goods and services. C) one which cannot have any inflation. D) dependent on the publicʹs faith to accept the currency.

Q: Suppose there are two policy options facing a vote in the Senate. In the first, government spending will increase $50 billion, while the second option is to cut taxes by $50 billion. A Keynesian economist would argue forA) the tax option because it also affects the incentives workers face. Long -run aggregate supply will increase with the tax cut, but not with the spending increase.B) the tax option because it is easier to pass. The effects on total spending would be identical. C) the spending option because it wonʹt affect the deficit the way the tax cut would.D) the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier.

Q: When television commentators refer to ʺtax and spendʺ policy, they are referring toA) fiscal policy. B) monetary policy.C) the Federal Reserve policy. D) automatic stabilizers.

Q: Which of the following is true?A) APC + MPS = 1 B) MPC + MPS = 1C) 1 + APC = APS D) APC - APS = 1

Q: A recessionary gap is the amount by whichA) total planned real expenditures exceed total planned production in the long run.B) the short-run equilibrium level nominal GDP is above the short-run real GDP. C) the short-run equilibrium level nominal GDP is below the short-run real GDP.D) the short-run equilibrium level of real GDP is below the full-employment level of real GDP.