Q&A Hero

Q: Which of the following statements is correct?I. If other factors are held constant, the level of employment in the economy determines real Gross Domestic Product (GDP).II. According to classical economists, only voluntary unemployment exists in the long run.A) I only B) II only C) Both I and II D) Neither I nor II

Q: The long-run aggregate supply curve isA) U-shaped. B) horizontal. C) upward sloping. D) vertical.

Q: Labor productivity rises whenA) average worker output falls. B) business investment falls.C) average worker output rises. D) nominal wages fall.

Q: If consumption expenditures are $100 million, net investment is $50 million, imports are $20 million, exports are $10 million, government spending on goods and services is $40 million, Social Security spending is $15 million, and sales of existing homes equals $40 million, then what is the measure of GDP?A) GDP = $225 million B) GDP = $180 millionC) GDP = $295 million D) GDP = $195 million

Q: Refer to the above figure. Stage ʺ3ʺ of the economy is called A) a development. B) a pit. C) a trough. D) a hole.

Q: If an outdoor vendor loses her job when winter weather comes, this individual is A) seasonally unemployed.B) cyclically unemployed. C) structurally unemployed. D) chronically unemployed.

Q: The primary source of funds for the World Bank isA) quota subscriptions. B) private financial markets.C) the worldʹs wealthiest countries.D) the New York Stock Exchange.

Q: When ʺstagflationʺ occurs, A) the economy experiences higher inflation rates and lower unemployment rates at the same time. B) the economy experiences lower inflation rates and higher unemployment rates at the same time. C) the economy experiences lower inflation rates and lower unemployment rates at the same time. D) the economy experiences higher inflation rates and higher unemployment rates at the same time.

Q: It is the responsibility of the Trading Desk at the Federal Reserve Bank of New York to implement policies in the form ofA) changes in the spread between the federal funds rate and the discount rate that are consistent with rules established by the twelve Federal Reserve bank presidents.B) variations in reserve requirements that are consistent with the announcements by the Chair of the Fedʹs Board of Governors.C) changes in foreign exchange rates that are consistent with policies established by the Secretary of the Treasury.D) buying or selling government securities that are consistent with the FOMC Directive.

Q: A person keeps $500 in his home in order to be prepared for some unforeseen future event. This reflects hisA) speculative demand for money. B) asset demand for money.C) precautionary demand for money. D) liquidity demand for money.

Q: In the United States, where do depository institutions hold their reserves? A) In their own vaults in the form of precious metals such as gold and silver B) In accounts with the U.S. Department of the Treasury C) Either as vault cash or on reserve with Federal Reserve district banks D) All reserves must be held at a Federal Reserve district bank

Q: Liquidity refers toA) the ease with which an asset can be acquired or disposed of without incurring high transaction costs.B) the expected return from an asset.C) the amount of indebtedness held against an asset. D) the net worth of the individual in question.

Q: According to the traditional Keynesian analysis, if the government increases spending by $10 million, thenA) consumption will increase, and so total expenditures will increase by more than $10 million.B) consumption will decrease, and so total expenditures will increase by less than the $10 million.C) consumption will remain the same, and so total expenditures will increase by exactly $10 million.D) consumption will increase or decrease, and so total expenditures will increase or decrease depending on the change in consumption.

Q: An increase in the price level causesA) reduced investment spending, because interest rates increase, but an increase in net exports as U.S. residents buy fewer imports. The change in investment is usually greater than the change in net exports.B) a reduction in net exports as higher priced U.S. goods induce foreigners to buy fewer American products, and an increase in investment spending as the higher prices make businesses more profitable.C) reduced investment spending, because interest rates increase and a decrease in net exports as the higher prices induce foreigners to buy fewer U.S. goods.D) increased government spending, which crowds out investment spending, so that the net effect on aggregate demand is nil.

Q: Real Disposable IncomePlanned Real Consumption03,0002,0004,4004,0005,8006,0007,2008,0008,60010,00010,00012,00011,40014,00012,800Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save when real disposable income equals $4,000?A) -0.45 B) 0.69 C) 0.7 D) 1.45

Q: Refer to the above figure. At the initial long-run equilibrium, the price level is , and at the new long-run equilibrium, the price level will be .A) 20; 45 B) 20; 40 C) 40; 45 D) 20; 20

Q: One tenet of classical economics is thatA) the role of the government should be limited, since the market will always be self-correcting.B) the government should intervene whenever necessary to avoid any unemployment.C) wages and prices are ʺsticky downward.ʺD) the government should set a minimum wage slightly above the natural market equilibrium rate.

Q: The long-run aggregate supply curve assumes that A) the unemployment rate is more than 9 percent. B) all factors of production are fully employed.C) only laborers are fully employed.D) there is no government purchasing of goods and services.

Q: The majority of evidence points to the fact that, in the last decade in the United States, labor productivity hasA) decreased. B) increased.C) stayed the same.D) decreased in the manufacturing sector but increased in the service sector.

Q: Net investment refers toA) the change in the capital stock after subtracting out depreciation.B) the change in inventories over a 1 -year period.C) the change in investment spending and the change in government expenditures on infrastructure.D) exports minus imports.

Q: Refer the above figure. Stage ʺ2ʺ of the economy is calledA) a contraction. B) a peak. C) a trough. D) an expansion.

Q: An example of a cyclically unemployed individual is A) Charles, who lost his job as a real estate salesperson when the housing market went soft. B) Alice, who quit her job to enter college. C) Mary, who lost her job in the textile industry following a decrease in the tariff on textiles. D) Bob, who has just graduated from college and is entering the labor market.

Q: Which of the following are NOT part of the World Bank? A) International Development Association B) Federal Reserve Bank of New York C) International Center for Settlement of Investment Disputes D) Multinational Investment Guarantee Agency

Q: Real business cycle theory emphasizes the effect of on economic performance.A) government spending B) the money supplyC) aggregate supply shocks D) tax rates

Q: Under the Fedʹs current interest-rate-targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal,A) the market federal funds rate decreases, and the Fedʹs Trading Desk responds by selling bonds.B) the market federal funds rate increases, and the Fedʹs Trading Desk responds by buying bonds.C) the market federal funds rate decreases, and the Fedʹs Trading Desk responds by buying bonds.D) the market federal funds rate increases, and the Fedʹs Trading Desk responds by selling bonds.

Q: The demand for money is based onA) the transactions demand, asset demand, and precautionary demand.B) the demand for cash, demand for securities, and the demand for real estate.C) the demand for consumption, demand for investment, and demand by government. D) a demand for liquidity and wealth.

Q: Fractional reserve banking can be thought of as a bank A) withholding a portion of its total deposits that are not loaned out. B) holding deposits equal to its net worth. C) paying a fraction of its profit to depositors. D) loaning out all of its reserves.

Q: When an asset is described as being highly liquid, which one of the following characteristics does it possess?A) It earns a high rate of interest, so its purchasing power is maintained when prices rise. B) It is easily and readily converted into money without any loss in purchasing power.C) The face value of the asset is somewhat less than its value when converted into currency.D) The asset holds its value over time.

Q: In the traditional Keynesian model, if the government increases spending, then A) consumption will increase, and so real Gross Domestic Product (GDP) will increase by more than the increase in government spending. B) consumption will decrease, and so real Gross Domestic Product (GDP) will increase by less than the increase in government spending. C) consumption will remain the same, and so real Gross Domestic Product (GDP) will increase by the same amount of the increase in government spending. D) consumption will increase or decrease, and so real Gross Domestic Product (GDP) will increase or decrease depending on the change in consumption.

Q: An increase in planned real investment spending causesA) a movement along the C + I + G + X curve and a shift of the aggregate demand curve. B) a shift of the C + I + G + X curve and a movement along the aggregate demand curve. C) a shift of the C + I + G + X curve but has no effect on the aggregate demand curve.D) a shift of the C + I + G + X curve that causes the aggregate demand curve to shift.

Q: Real Disposable IncomePlanned Real Consumption03,0002,0004,4004,0005,8006,0007,2008,0008,60010,00010,00012,00011,40014,00012,800Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?A) -0.45 B) 0.69 C) 0.7 D) 1.45

Q: Refer to the above figure. Which point or points represent(s) a long -run equilibrium?A) A only B) B only C) C only D) both A and B

Q: All of the following are assumptions of the classical model EXCEPTA) inflexible wages. B) absence of money illusion.C) pure competition. D) self-interest of economic actors.

Q: A rightward shift of the long-run aggregate supply curve is caused by A) an increase in the minimum wage. B) an increase in the average duration of unemployment. C) improvements in technology and resource endowments. D) an increase in the GDP deflator.

Q: Which of the following variables can be used to measure labor productivity?A) real GDP B) number of workersC) number of labor hours D) all of the above

Q: Gross domestic product isA) NDP plus net exports. B) NDP plus taxes.C) NDP plus depreciation. D) NDP less changes in inventories.

Q: Refer the above figure. Stage ʺ1ʺ of the economy is calledA) the top. B) the peak. C) the trend. D) the climax.

Q: Cyclical unemployment occurs whenA) individuals enter the labor market and make the rounds of potential employers. B) individuals with skills no longer valued in the domestic labor market cannot find employment.C) individuals give up the search for employment.D) a downturn in economic activity decreases employment.

Q: The international organization with the sole goal of promoting global antipoverty efforts is the A) World Bank. B) International Monetary Fund. C) Board of Governors of the Federal Reserve System. D) GAE.

Q: The policy irrelevance proposition states thatA) only relatively large expected changes in monetary policy impact the economy.B) anticipated changes in monetary policy are ineffective in changing real GDP. C) only statements from the White House have impact on the economy.D) in the short run unanticipated changes in monetary policy are ineffective in changing real GDP.

Q: Which of the following policy tools is directly controlled by the Trading Desk at the Federal Reserve Bank of New York?A) the spread between the discount rate and the federal funds rateB) the spread between the federal funds rate and the interest rate on banksʹ required reservesC) the required reserve ratioD) open market sales and purchases

Q: The transactions demand for money is related to money functioning as aA) unit of accounting. B) medium of exchange.C) store of value. D) medium of deferred payment.

Q: If banks engage in fractional reserve banking, it means thatA) they never run short of currency.B) they hold less than 100 percent of their deposits as reserves.C) a fraction of their legal reserves are held as top -grade government securities. D) they do not hold any excess reserves.

Q: The ability to quickly convert an asset into cash isA) disintermediation. B) the standard of deferred payment. C) financial intermediation. D) liquidity.

Q: In the traditional Keynesian model, an increase in government spendingA) causes the C + I + G + X line to shift upward by the full amount of the increase in government spending.B) causes the C + I + G + X line to shift upward by an amount less than the increase in government spending.C) causes the C + I + G + X line to shift upward by more than the increase in government spending.D) causes no change in the C + I + G + X line.

Q: A rise in the price level causesA) an increase in aggregate demand.B) a decrease in aggregate demand.C) a reduction in total planned real expenditures.D) an increase in total planned real expenditures.

Q: Real Disposable IncomePlanned Real Consumption03,0002,0004,4004,0005,8006,0007,2008,0008,60010,00010,00012,00011,40014,00012,800Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. The break -even level of real disposable income isA) 0 B) 6,000 C) 10,000 D) 14,000

Q: Refer to the above figure. Which point or points represent(s) a short -run equilibrium?A) A only B) B only C) C only D) both A and B

Q: The classical model assumes thatA) imperfect competition predominates in most markets. B) people have money illusion.C) wages and prices are flexible.D) wages are flexible but prices are not.

Q: The long-run aggregate supply curve shifts right at the same time asA) the Laffer curve shifts upward.B) the production possibilities curve shifts outward.C) the production possibilities curve shifts inward. D) the inflation rate increases.

Q: Which resource is the main contributor to economic growth in the United States, Latin America, and South Asia?A) growth in physical capitalB) growth in human capital (education) C) growth in labor D) growth in land

Q: If consumption expenditures are $500 million, spending on fixed investment is $100 million, the increase in inventories equals $5 million, imports are $50 million, exports are $55 million, government spending on goods and services is $200 million, than GDP isA) $790 million. B) $800 million. C) $810 million. D) $830 million.

Q: The period between the trough and the peak of a business fluctuation is calledA) the growth phase. B) the spreading out.C) the development. D) the expansion.

Q: An example of a frictionally unemployed individual isA) Charles, who has lost his job as an auto worker because of increased imports. B) Mary, who quit her job to find work closer to her home.C) Sam, who lost his job as a real estate salesperson when the housing market went soft. D) Cynthia, who has few skills and is no longer looking for work.

Q: The World Bank will primarily make A) short-term loans for investment projects that are relatively safe. B) short-term loans for investment projects which might not receive private financial support. C) long-term loans for investment projects that are relatively risky. D) long-term in nature for investment projects which might not receive private financial support.

Q: In the above figure, if we start at AD1 and SRAS1, and the money supply increases unexpectedly, what causes the economy to get to the long -run equilibrium?A) Peopleʹs expectations will revise after a short-run gain in output, wages will fall, and SRAS will shift leftward.B) Peopleʹs expectations will revise after a short-run gain in output, wages will rise, and SRAS will shift rightward.C) Peopleʹs expectations will revise after a short-run loss in output, wages will fall, and SRAS will shift leftward.D) Peopleʹs expectations will revise after a short-run gain in output, wages will rise, and SRAS will shift leftward.

Q: Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day? A) the Board of Governors. B) Federal Advisory Committee. C) the Federal Reserve Bank of Chicagoʹs Board of Trade. D) the Federal Reserve Bank of New Yorkʹs Trading Desk.

Q: Which of the following represents the opportunity cost of holding money?A) liquidity B) the interest rateC) the rate of inflation D) none of the above

Q: Fractional reserve banking refers to a banking system in which A) bank deposits are less than bank reserves. B) bank reserves are only a fraction of total deposits. C) bank reserves are only a fraction of required reserves. D) bank loans are less than bank reserves.

Q: An individual who desires the most liquid asset possible will holdA) currency. B) a savings account.C) checkable deposits at a bank. D) U.S. government bonds.

Q: In the traditional Keynesian model, if the government increases spending, thenA) real Gross Domestic Product (GDP) will rise and the price level will remain constant. B) real Gross Domestic Product (GDP) will increase and the price level will fall.C) both real Gross Domestic Product (GDP) and the price level will rise.D) real Gross Domestic Product (GDP) will remain constant and the price level will rise.

Q: A lower price level causes the C + I + G + X curve to shift as a result of a change in all the following EXCEPTA) an increase in real wealth. B) a decrease in interest rates.C) an increase in aggregate supply.D) an increase in foreign spending on domestic goods.

Q: Real Disposable IncomePlanned Real Consumption03,0002,0004,4004,0005,8006,0007,2008,0008,60010,00010,00012,00011,40014,00012,800Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the marginal propensity to consume?A) 0 B) 0.3 C) 0.7 D) 1

Q: The three curves in the above figure areA) (1) the long-run aggregate supply curve, (2) the aggregate demand curve, and (3) the short-run aggregate supply curve.B) (1) the long-run aggregate supply curve, (2) the short -run aggregate supply curve, and (3) the aggregate demand curve.C) (1) the short-run aggregate supply curve, (2) the aggregate demand curve, and (3) the long-run aggregate supply curve.D) (1) the aggregate supply curve, (2) the short -run aggregate demand curve, and (3) the long-run aggregate demand curve.

Q: Suppose Paris thinks a 5 percent increase in her hourly wage as an incentive to work more hours while the price level also increases by 5 percent. Paris is said to be suffering fromA) money illusion. B) rationality.C) irrationality. D) the effects of competition.

Q: What causes the long -run aggregate supply curve to shift right?A) economic growth B) inflationC) unemployment D) scarcity

Q: Labor productivity can best be calculated asA) real Gross Domestic Product (GDP) / Gross Domestic Product (GDP) price index.B) real Gross Domestic Product (GDP) / number of workers. C) number of workers / hours of work.D) real wages / hours of work.

Q: If imports are $100 million less than exports, government spending is $500 million, consumer expenditures are $1 billion, and investment spending is $500 million, then GDP isA) $1 billion. B) $1.9 billion. C) $2 billion. D) $2.1 billion.

Q: The National Bureau of Economic Research isA) funded by Congress and evaluates the budget appropriations.B) funded by the Federal Reserve Banks and analyzes the banking system. C) a nonprofit organization and evaluates the business cycles.D) a nonprofit organization and evaluates the U.S. monetary policy.

Q: A lifeguard who is out of work in the winter isA) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) seasonally unemployed.

Q: A multinational organization that aims to promote world economic growth through more financial stability is theA) Federal Reserve System. B) World Bank.C) International Monetary Fund. D) International World Fund.

Q: In the above figure, if we start at AD1 and SRAS1, and the money supply increases unexpectedly, what would be the long -run equilibrium?A) E1 B) E2 C) E3 D) P1

Q: The office of the Federal Reserve Bank of New York charged with implementing Federa Reserve open market policy actions is known as theA) Open Market Coordination Office. B) Open Market Cooperation Office. C) Response Desk. D) Trading Desk.

Q: Which of the following is NOT a type of demand for holding money?A) transactions demand B) precautionary demandC) asset demand D) qualitative demand

Q: A system in which depository institutions hold reserves that are less than the amount of total deposits is calledA) fiat money banking. B) fractional reserve banking.C) central banking system. D) required reserve banking.

Q: The degree to which an asset can be acquired or disposed of without much loss of nominal value or transaction costs is known asA) fiat money. B) liquidity. C) fiducia. D) credit.

Q: What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

Q: A higher price level causesA) the aggregate demand curve to shift to the left. B) the aggregate demand curve to shift to the right. C) the C + I + G + X curve to shift down.D) the C + I + G + X curve to shift up.

Q: Real Disposable IncomePlanned Real Consumption03,0002,0004,4004,0005,8006,0007,2008,0008,60010,00010,00012,00011,40014,00012,800Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What does planned real saving equal when real disposable income equals $6,000?A) -3,000 B) -1,200 C) 0 D) 7,200

Q: In the Keynesian model, an aggregate demand shockA) will cause the aggregate demand curve to shift, leading to a change in the price level and real GDP.B) will cause the aggregate demand curve to shift, leading to a change in the price level but not real GDP.C) will cause the aggregate demand curve to shift, leading to a change in real GDP but not the price level.D) will not lead to a shift of the aggregate demand curve.