Q&A Hero

Q: According to classical economists, a decrease in the rate of interest willA) increase unemployment. B) increase consumer saving. C) increase business investment. D) increase business failures.

Q: Economic growth causes the A) production possibilities curve to shift rightward and the long-run aggregate supply curve to shift rightward. B) production possibilities curve to shift leftward and the long -run aggregate supply curve to shift rightward. C) production possibilities curve to shift rightward and the long-run aggregate supply curve to shift leftward. D) production possibilities curve to shift leftward and the long -run aggregate supply curve to shift leftward.

Q: Labor productivity increases whenA) the population increases.B) output increases even if the labor force has decreased.C) output increases at the same rate as the labor force increases. D) output increases faster than population increases.

Q: Because of terrible winter storms, gross domestic product for the first quarter of the calendar year falls by 10 percent. As a result, gross domestic incomeA) falls by less than 10 percent.B) also falls by 10 percent because they always have to be equal.C) falls by more than 10 percent because incomes always vary more than GDP.D) would not change since the time span is less than a year.

Q: Suppose an individual buys a new CD of her favorite musical artist. This purchase has taken place in theA) product markets. B) factor markets.C) labor markets. D) resource markets.

Q: Frictional unemployment always exists becauseA) some workers quit their jobs without having another job already lined up. B) the government has never instituted full employment policies.C) workers are lazy and refuse to accept certain jobs.D) recessions are necessary sometimes to keep the economy healthy.

Q: If the World Bank makes loans to nations that can attract private funds,A) the increase in growth in that nation will spill over to other nations that are developing.B) these loans will interfere in the private market for capital goods and can lead to inefficient investment.C) the World Bankʹs loans will crowd out the private funds made to developing nations to encourage economic growth.D) the presence of the World Bankʹs loans will lead to even more private funds being attracted to that country.

Q: In the above figure, starting at E1, if there is a supply shock that is temporary, the A) aggregate supply would shift to SRAS0 and LRAS1 would shift to LRAS0. B) aggregate supply would shift to SRAS1 and LRAS0 would shift to LRAS1. C) aggregate supply would shift to SRAS2 and LRAS0 would shift to LRAS1. D) aggregate supply would shift to SRAS1 and then return to SRAS0.

Q: Suppose the actual equilibrium federal funds rate is less than the neutral federal funds rate. Given this information, we would expect thatA) real GDP will grow at a rate greater than the potential real GDP growth rate. B) real GDP will grow at a rate less than the potential real GDP growth rate.C) real GDP will grow at a rate equal to the potential real GDP growth rate. D) the inflation rate will tend to fall.

Q: The asset demand for money isA) greater at high interest rates as investors can earn more on their investments.B) greater at low interest rates, because the opportunity cost of holding money is low.C) greater at low interest rates, because the opportunity cost of holding money is high. D) lower at low interest rates, because the opportunity cost of holding money is high.

Q: A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equalA) $10 million. B) $15 million. C) $25 million. D) $40 million.

Q: Checkable and debitable accounts in commercial banks and other financial institutions are classified as money because A) they are not liabilities of the banks. B) they sometimes earn an interest income for the depositor. C) they are generally acceptable in the payment of debt. D) banks hold currency in their vaults equal to the value of demand deposits.

Q: In the traditional Keynesian model, if the government cuts current taxes,A) the C + I + G + X line will shift down but the aggregate demand curve will not shift.B) the C + I + G + X line will shift down and the aggregate demand curve will shift to the left.C) the C + I + G + X line will shift up and the aggregate demand curve will shift to the right. D) the C + I + G + X line will shift up but the aggregate demand curve will not shift.

Q: Which of the following would shift the aggregate demand curve to the right?A) An increase in government spending B) An increase in taxesC) An increase in interest rates D) An increase in input prices

Q: Which one of the following statements is true?A) In the classical model, the supply of saving is determined by the rate of interest.B) In the classical model, the supply of saving is determined by the level of income. C) In the Keynesian model, the supply of saving is determined by the rate of interest.D) In the Keynesian model, the supply of saving is determined by the level of investment.

Q: An inflationary gap occurs whenA) aggregate demand falls, but other things remain constant.B) short-run aggregate supply falls, but other things remain constant.C) the short-run equilibrium level of real GDP is greater than long-run aggregate supply.D) the short-run equilibrium level of real GDP is less than long -run aggregate supply.

Q: Classical economists argued thatA) there would always be an excess of saving over investment. B) workers had money illusion.C) excess savings would create unemployment.D) a flexible interest rate would make saving equal to investment.

Q: Economic growth is demonstrated by the LRAS as itA) shifts to the right. B) shifts to the left.C) becomes more horizontal. D) becomes more vertical.

Q: Which of the following is an example of a measure of labor productivity?A) Farm workers produce 30 bushels of wheat per worker per day. B) Autos get 30 gallons to the mile.C) The growth rate of per capita real GDP is 3.5 percent per year. D) Wages increase by 3.5 percent per year for 5 years.

Q: If households receive $100 in interest payments and make interest payments of $110, wages equal $500, rental receipts are $200, royalties are $100, profits are $200, depreciation is $50, and indirect business taxes are $50, then gross domestic income isA) $1090. B) $1110. C) $1180. D) $1280.

Q: In the factor market, householdsA) sell resources. B) buy resources.C) are neither buyers nor sellers of resources. D) are both buyers and sellers of resources.

Q: Unemployment that results from the seasonal pattern of work in specific industries isA) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

Q: Which of the following statements is true about the success of the World Bank?A) The World Bank has been very successful in promoting economic growth because loans have been primarily made to countries that have trouble attracting private funds.B) The World Bank has not been successful because many loans have been made to countries that can attract private funds.C) The World Bank has been successful because it has focused on its primary function of making loans to governments.D) The World Bank has not been successful because it has focused on making loans to governments where there has been a loss of confidence in a nationʹs financial system.

Q: In the above figure, starting at E1, if there is a supply shock that is permanent, the A) aggregate supply would shift to SRAS1 and LRAS1 would shift to LRAS0. B) aggregate supply would shift to SRAS1 and LRAS0 would shift to LRAS1. C) aggregate supply would shift to SRAS2 and LRAS0 would shift to LRAS1. D) aggregate supply would shift to SRAS1 and then return to SRAS0.

Q: Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that A) monetary policy is very expansionary. B) monetary policy is very contractionary. C) the Fed should halt efforts to target the money supply. D) the Fed should switch to targeting the money supply instead of the federal funds rate.

Q: Suppose Tim has $1,000 in cash on hand to buy collectable baseball cards at a swap meet. Tim often sells these cards at a profit. This is an example of theA) asset demand for money. B) transaction demand for moneyC) precautionary demand for money. D) wealth demand for money.

Q: The reserve ratio is 10% and a bank has $600,000 in transaction deposits. The amount of reserves equalsA) $6,000. B) $60,000. C) $600,000.D) undeterminable without information on cash reserves.

Q: In a fiduciary monetary system, the value of the money issued by a government is based onA) the gold held in that governmentʹs vaults.B) public confidence in that currencyʹs acceptability and predictability of value. C) the ability to convert it to some asset of value, like silver.D) its being made out of some material with a market value equal to a billʹs face value.

Q: In the traditional Keynesian model, if the government cuts taxes, thenA) both consumption and real Gross Domestic Product (GDP) will increase. B) both consumption and real Gross Domestic Product (GDP) will decrease.C) consumption will increase but Gross Domestic Product (GDP) will decrease. D) consumption will decrease but Gross Domestic Product (GDP) will increase.

Q: Which of the following is an example of fiscal policy?A) a reduction in the federal funds rate. B) a reduction in the money supply.C) a reduction in lump-sum taxes.D) an increase in the physical stock of capital.

Q: Another way of stating that investment is independent of real disposable income is to say that it isA) inversely related. B) directly related. C) complementary. D) autonomous.

Q: The short-run and long-run aggregate supply curves remain stable, and a decrease in aggregate demand occurs. What is the result in the short run?A) An increase in the price level and real GDP will occur.B) A period of expansion and a rise in the unemployment rate could occur.C) A period of recession and a rise in the unemployment rate could occur. D) The price level will fall but real GDP will remain the same.

Q: The equilibrating force in the credit market in the classical model isA) the interest rate. B) the price level. C) full employment. D) fiscal policy.

Q: Economic growth can be shown by A) a leftward shift in the aggregate supply curve. B) no change in the aggregate supply curve. C) a rightward shift in the aggregate supply curve. D) a leftward shift in the production possibilities curve.

Q: Productivity relates toA) working harder over time. B) working longer over time.C) producing the same output with fewer labor hours. D) producing the same output with more labor hours.

Q: Indirect business taxes include all of the following EXCEPTA) sales taxes. B) taxes on business property.C) taxes on corporate profits. D) taxes on business equipment.

Q: According to the circular flow, the dollar value of a nationʹs output is equal toA) profits. B) total income. C) net income minus taxes. D) wages.

Q: Unemployment that results from business recessions that occur when aggregate demand is insufficient to create full employment isA) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

Q: All the following would be a possible loan that the International Monetary Fund might make EXCEPTA) a loan to a private firm.B) long-term loans to a nationʹs government which support growth promoting projects. C) short-term loans to a nationʹs government.D) long-term loans to countries which are having problems in repaying existing debts.

Q: Stagflation means aA) high rate of inflation coupled with a high rate of unemployment.B) high rate of inflation coupled with a very low rate of unemployment.C) low rate of inflation coupled with a very high rate of unemployment.D) low rate of inflation coupled with a rate of unemployment below the natural rate.

Q: Which of the following is NOT a basis for the Taylor -rule guideline for how the Federal Reserve should set its target value for the federal funds rate? A) an estimated long-run real interest rate B) the current deviation of the actual inflation rate from the Fedʹs inflation objective C) the present deviation of the actual unemployment rate from the Fedʹs unemployment objective D) the gap between actual real GDP and a measure of potential real GDP

Q: If the interest rate increases, there is a(n) A) increase in the demand for money. B) decrease in the demand for money.C) increase in the quantity of money demanded.D) decrease in the quantity of money demanded.

Q: Total reserves areA) required reserves plus vault cash. B) required reserves plus excess reserves.C) required reserves. D) excess reserves.

Q: The reason we are willing to accept money with no intrinsic value is that A) paper currency may be exchanged for full-bodied money. B) the money supply is backed by an equal amount of gold and silver. C) we have a fiduciary monetary system in which currency has both acceptability and predictability of value. D) the value of the money varies directly with changes in the price level.

Q: According to the traditional Keynesian approach, a tax cut raises aggregate demand becauseA) taxes are part of the C + I + G + X line.B) disposable income available to consumers increases.C) taxpayers anticipate a tax increase in the future. D) a tax cut always results in a balanced budget.

Q: When the government deliberately alters its level of spending and/or taxes in order to achieve specific national economic goals, it is exercisingA) monetary policy. B) discretionary fiscal policy. C) a Ricardian policy. D) a laissez-faire policy.

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

Q: Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, thenA) the price level will increase in the short run and decrease in the long run. B) there will be an expansionary gap.C) there will be a recessionary gap.D) long-run aggregate supply will eventually decrease too.

Q: At higher rates of interest,A) households save less and businesses invest more. B) households save less and businesses invest less. C) households save more and businesses invest less.D) households save more and businesses invest more.

Q: Economic growth is represented on the aggregate supply model by aA) shift in the long-run aggregate supply curve to the left. B) shift in the long-run aggregate supply curve to the right. C) shift in the short-run aggregate supply curve to the left. D) shift in the short-run aggregate supply curve to the right.

Q: Economic growth can be defined asA) the rate of growth in the productivity of labor.B) the rate of growth in the productivity of capital.C) the rate of growth of labor plus the rate of depreciation of capital.D) the rate of growth of labor plus the rate of growth of capital plus the rate of growth in the productivity of labor and capital.

Q: The largest component of gross domestic income isA) interest payments. B) wages. C) profits. D) taxes.

Q: Which of the following is true about product markets?A) Goods and services flow from households to firms. B) Goods and services flow from firms to households.C) Factors (land, labor, capital, and entrepreneurial ability) flow from households to firms. D) Factors (land, labor, capital, and entrepreneurial ability) flow from firms to households.

Q: Unemployment that results from a mismatch of workersʹ abilities and skills with current requirements of employers isA) frictional unemployment. B) structural unemployment.C) cyclical unemployment. D) seasonal unemployment.

Q: The primary function of the International Monetary Fund is A) to provide loans only to private firms in developing countries. B) to make direct, irrevocable transfers of funds from wealthy nations to poor nations. C) to lend solely on the basis of a nationʹs relative poverty. D) to make loans aimed at promoting global stability and hence growth.

Q: The real business cycle theoryA) is an extension of the Keynesian view of business cycles.B) is an extension of the adaptive expectations theory of business cycles.C) suggests that instability is caused by shifts in the long -run aggregate supply curve. D) suggests that instability is caused by shifts in the aggregate demand curve caused by changing consumer confidence in the economy.

Q: Suppose the neutral federal funds rate is equal to 5%. If the actual federal funds rate is 3.5%, we would expect thatA) the rate of growth of real GDP will be less than its potential rate of growth.B) the rate of growth of real GDP will be greater than its potential rate of growth. C) the rate of growth of real GDP will be equal to its potential rate of growth.D) the rate of growth of real GDP may be above or below its potential rate of growth.

Q: The demand for money is downward sloping, because at higher interest rates, A) the opportunity cost of holding cash is lower.B) the opportunity cost of holding money is higher.C) the opportunity cost of holding money is decreasing.D) the opportunity cost of holding money is constant.

Q: Total reserves of private banks areA) all customer deposits.B) deposits held at the Fed and vault cash.C) the minimum amount banks need to hold against time deposits. D) federal reserve notes.

Q: The most liquid asset isA) gold. B) silver.C) money. D) blue-chip stocks.

Q: In the traditional Keynesian model, an increase in current taxesA) increases disposable income but does not affect consumption. B) decreases both disposable income and consumption.C) decreases disposable income but increases consumption. D) has no effect on either disposable income or consumption.

Q: Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?A) Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures.B) Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures.C) Both inventories and production of goods and services will increase.D) Inventories will not change and production of goods and services will not change either.

Q: The average price of a share of stock on the New York Stock Exchange falls by 30 percent. Other things being equal, we would expectA) an increase in the marginal propensity to consume. B) a decrease in the marginal propensity to consume. C) a shift up of the consumption function.D) a shift down of the consumption function.

Q: A change in tastes for U.S. produced goods willA) shift both the aggregate demand curve and the long -run aggregate supply curve.B) shift the aggregate demand curve.C) shift the short-run aggregate supply curve. D) shift the long-run aggregate supply curve.

Q: According to the classical model, more saving leads to more investment becauseA) the people who save are the same people who invest.B) the interest rate adjusts to keep investment equal to saving. C) saving and investment are two sides of the same activity.D) the interest rate is set by the federal government.

Q: A long-run aggregate supply curve may graphically be represented as aA) vertical line. B) horizontal line.C) an upward sloping line. D) a downward sloping line.

Q: The most important thing about higher labor productivity is that it meansA) we are doing better than anyone else is.B) we can compete well with other nations. C) we can achieve a happier population.D) we can have a higher standard of living.

Q: The computation of GDP by adding up all components of national income including wages, interest, rent and profits isA) the expenditure approach. B) the income approach.C) transfer payments. D) the value of all securities.

Q: The observation that goods and services flow in one direction and money payments flow in another direction is the principle behindA) the double coincidence of wants. B) a barter economy.C) a pure command economy. D) the circular flow of income.

Q: Unemployment due to the fact that workers have difficulty in the search for appropriate job offers isA) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

Q: The amount of funds that a nation can withdraw from the International Monetary Fund depends uponA) its quota subscription.B) whether it is a developing nation or a developed nation.C) whether it is seeking a long-term or short-term loan. D) the rules set up by the World Bank.

Q: During the 1970s, the shocks to the United Statesʹ economy resulted inA) an increase in the unemployment rate, but a decrease in the inflation rate.B) a decrease in the unemployment rate, but an increase in the inflation rate. C) an increase in both the unemployment rate and the inflation rate.D) a decrease in both the unemployment rate and the inflation rate.

Q: Suppose the actual federal funds rate is greater than the neutral federal funds rate. Given this information, we would expect that A) the rate of growth of real GDP will be less than its potential rate of growth. B) the rate of growth of real GDP will be greater than its potential rate of growth. C) the rate of growth of real GDP will be equal to its potential rate of growth. D) the rate of growth of real GDP may be above or below its potential rate of growth.

Q: Bertha holds some of her savings as currency and coins placed in her sewing basket. This is an example ofA) precautionary demand for money. B) asset demand for money.C) transactions demand for money. D) wealth demand for money.

Q: Deposits held by Federal Reserve district banks for depository institutions, plus depository institutionsʹ vault cash are known asA) reserves. B) a sweep account. C) adverse selection. D) the discount rate.

Q: The opportunity cost of holding money is measured byA) a dollar.B) the price of government bonds.C) the interest yield that could have been earned by holding some other asset.D) the liquidity of interest-bearing assets.

Q: In the traditional Keynesian model, a tax cutA) causes the C + I + G + X line to shift upward.B) causes the C + I + G + X line to shift downward. C) causes a movement along the C + I + G + X line. D) does not affect the C + I + G + X line.

Q: In the Keynesian model, an increase in real autonomous spending results in a greater increase in real Gross Domestic Product (GDP) ifA) the marginal propensity to consume (MPC) is lower. B) the marginal propensity to consume (MPC) is higher. C) the average propensity to save (APS) is higher.D) the average propensity to save (APS) is lower.

Q: The stock of assets owned by a person, household, firm or nation isA) real disposable income. B) wealth.C) capital investment. D) capital goods.

Q: If we observe an increase in real GDP and an increase in the price level after an increase in aggregate demand, we can conclude thatA) the aggregate supply curve is upward sloping. B) the aggregate supply curve is horizontal.C) the aggregate supply curve is vertical.D) the economy is now at full employment.