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1. If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the following is true. (a) Effective trade barriers have reduced foreign imports into the economy. (b) New technology is being used in production. (c) Resources are not available to achieve that combination of goods/services. (d) resources are not being used efficiently to achieve that combination of goods or services. (e) Resources are being used at a more rapid rate then they were in the past. 2. Which of the following groups would most likely gain from unanticipated inflation? Borrowers borrowed (a) Landlords who own apartments in cities with rent controls. “dear” money & paid (b) Individuals who have fixed retirement incomes. back “cheaper” money. (c) Individuals who earn high incomes (d) Individuals who have borrowed money at fixed interest rates (e) Banks that have loaned all excess reserves at a fixed interest rate. 3. With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate Quantity of Money (a) Increase Decrease (b) Increase Not change (c) Decrease Decrease (d) Decrease Increase (e) Decrease Not change
imports from Britain cheaper (e) purchase 3 times more British goods than before the change occurred .S. making U. making U.S. dollar and the British pound changed from $2 per one pound to $3 per one pound. dollar would (a) depreciate. imports from Britain more expensive (b) depreciate.S. imports from Britain cheaper (c) appreciate. then the U. making U.S.S. imports from Britain more expensive (d) appreciate. an increase in AS will most likely cause income and employment to change in which of the following ways? Income (a) Decrease (b) Decrease (c) No change (d) Increase (e) Increase Employment Decrease Increase Increase Decrease Increase 5. making U. According to the graph above.PL PL1 PL2 E1 AD E2 AS AS Y1 Y2 Real GDP 4. If the exchange rate between the U. and domestic prices in both countries stayed the same.S.
8. The concept of opportunity cost would no longer be relevant if (a) poverty in an economy no longer existed (b) the supply of all resources were unlimited (c) resources were allocated efficiently (d) real wages were flexible (e) all current incomes were invested in technological research . An increase in which of the following is most likely to promote economic growth? (a) Consumption spending (d) The trade deficit Economic growth is increased with more (b) Investment tax credits (e) Real interest rates real capital equipment to produce things. An appropriate fiscal policy to combat a recession would be to increase which of the following? (a) Interest rates (d) Government spending (b) The money supply (e) The sale of government bonds (c) Taxes 9. an increase in which of the following will most likely cause employment to increase and the interest rate to decrease? (a) Purchases of government bonds by the central bank (b) Transfer payments Fed “buying” bonds means “bigger” supply of money and lower interest rates. The lower interest rates lead to more (c) Reserve requirements consumption and investment and increase employment. Investment tax credits result in more real (c) The natural rate of unemployment capital equipment.6. If an economy is operating with significant unemployment. (d) Government expenditures (e) Investment in basic infrastructure 7.
Economic growth means more real (d) The Phillips curve becomes flatter. (e) The tariff on goods imported into the U. Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation? (a) A decrease in interest rates (b) A decrease in reserves in the banking system (c) A decrease in the government deficit The Fed would “sell” bonds to the banks. and capital (e) Business cycles no longer exist. 12. 11. or decrease in reserves in the banking system.S. consumer price index (c) Demand for the dollar by U. residents Lower prices increase demand for U. (e) An increase in exports . interest rates (b) The U. (d) An increase in the money supply resulting in a “smaller” MS. (c) The AD curve shifts to the right. (d) Exports from the U.S. labor.10.S. More land.S. Which of the following would indicate that economic growth has occurred? (a) The production possibilities curve shifts to the left. exports and appreciate the dollar.S.S. An appreciation of the U. (b) The long-run aggregate supply curve shifts to the right. shift out the PPC and LRAS curve. dollar on the foreign exchange market could be caused by a decrease in which of the following? (a) U.S. capital.
13. and the dollar will appreciate to purchase these. and the dollar will appreciate and bonds] & financial flows of (c) out of the U.S. Which Fed action can shift the AD curve to the left? (a) Lowering the federal funds rate (b) Lowering income taxes (c) Lowering reserve requirements (d) Raising the discount rate (e) Raising government spending on national defense 14. and the dollar will depreciate demand for our financial capital [CDs (b) into the U. and the dollar will depreciate foreign money will flow in to the U.S.S.S.S.S. If the real interest rate in the U. (e) out of the U. Crowding out refers to the decrease in (a) national output caused by higher taxes (b) domestic production caused by increased imports (c) private investment due to increased borrowing by the government (d) employment caused by higher inflation (e) exports caused by an appreciating currency of a country 15.S. increases relative to that of the rest of the world. capital should flow Higher U.S. interest rates attract more (a) into the U. and the value of the dollar will not change . (d) out of the U.
Bureau of Labor Statistics? (a) Persons who quit their previous jobs to stay at home to care for sick parents (b) Persons who were laid off from their previous jobs and have not applied for a job in two years (c) Persons who were fired from their previous jobs and are actively applying for work (d) Persons who have given up looking for jobs after long searches (e) Persons who quit their previous jobs to start their own business 18. investment & consumption spending decrease. & output and prices decrease. & output and prices decline. (c) Interest rates increase. AD decreases. (b) Interest rates increase. & output and prices increase. (e) Interest rates decrease.16. investment & consumption spending decrease. AD decreases. AD increases. (d) Interest rates decrease. investment and consumption spending decrease. AD decreases. Which of the following would occur if the Fed implemented contractionary monetary policy? (a) Interest rates increase. investment and consumption spending decrease. & output and prices decrease. investment and consumption spending increase.S. . and output and prices decrease. AD decrease. Which of the following will be counted as unemployed by the U. Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession? (a) Decreasing both taxes and the money supply (b) Increasing both taxes and the money supply (c) Increasing government spending and decreasing the federal funds rate (d) Increasing both taxes and the discount rate (e) Engaging in deficit spending and government bond sales 17.
8. Suppose that autonomous consumption is $400 and that the MPC is 0. (b) Increase Decrease The increase in SRAS would also lower PL which (c) Decrease No change would increase the real value of the dollar.600 (d) $960 With an MPC of 0. consumption spending will increase by (a) $1. the change in income of $1.200.8. 80% of $1. disposable income increases by $1.19. When the average price level increases by 10% in a given year. which of the following must increase by 10% for real output to remain constant? (a) Real national income (b) Nominal national income (c) The international value of the currency (d) Real interest rates (e) Nominal interest rate .200 20. an increase in labor productivity will result in which of the following changes in output and real wages? Output Real Wages (a) Increase Increase The increase in productivity will shift the SRAS curve to the right which would increase output. In an economy in which all prices.360 (e) $400 result in 80% of it being consumed. (e) Decrease Decrease 21.200 is $960. including wages are completely flexible. (d) Decrease Increase causing an increase in real wages.200 will (b) $1. (c) $1.
Which of the following can be expected to cause an increase in GDP in the short run? The “balanced budget multiplier” is in effect (a) An increase in the tax rate here where the increase in G is stronger than (b) An increase in the interest rate the increase in “T” due to a larger multiplier. demand in the LFM. because supply will increase to eliminate the shortage. (c) Price will increase to eliminate the surplus and restore equilibrium. (d) Unemployment will decrease. which would lower interest rates. (c) Equal increases in both imports and exports (d) Equal increases in both taxes and government expenditures (e) Equal decreases in both investment and government expenditures 25.22. A short-run Phillips curve shows an inverse relationship between (a) interest rates and borrowing (d) prices & QD (b) inflation & unemployment (e) inputs & outputs (c) income and consumption 24. If the federal government reduces its budget deficit when the economy is close to full employment. (d) Price will increase to eliminate the shortage and restore equilibrium. Which of the following will occur in a competitive market when the price of a good is less than the equilibrium? (a) Price will decrease to eliminate the surplus and restore equilibrium. (E) The international value of the dollar will increase. (e) Price will remain constant. 23. which of the following will most likely result? Reducing the deficit means (a) Inflation will increase. (b) Price will decrease to eliminate the shortage and restore equilibrium. (b) Tax revenues will increase. less borrowing and less (c) Interest rates will decrease. .
results in more demand for foreign goods which (d) A decrease in interest rates in Europe appreciates that currency and depreciates (e) A decrease in price level in the U. If the expected inflation rate is 5%. Which of the following will lead to an increase in the U. (c) The government prohibits the sale of alcoholic beverages (d) Foreign companies build new assembly plants in the U. Which of the following will cause the U.S. (b) An increase in interest rates in the U.S.S.26. dollar to depreciate relative to the Euro? (a) An increase in household income in the U. (b) Some citizens begin working abroad as computer programmers.S.S. (e) Long-run AS curve to shift to the left (f) Long-run AS curve to the right .5% (b) 2% (c) 5% (d) 10% (e) 15% 29.S. (c) An increase in household income in Europe Increasing HH income in the U. 27. Stagflation is most likely to be caused by (a) an increase in AD (d) a decrease in AS (b) a decrease in AD (e) a large increase in the MS (c) an increase in AS 28. the dollar. GDP? (a) More individuals prepare their own personal income tax forms.S. the real interest rate is (a) 0. Assume that the nominal interest rate is 10%.
$2. The d. e. AD curve to shift to the right b.000.000.000 billion The $400 is new money in the banking system. the maximum increase in the money supply is a. Short-run AS curve to shift to the left d.400 billion . Long-run AS curve to shift to the right 31. With a RR of 20%. Suppose that the Fed buys $400 billion worth of government securities from the Public. $2. $2.800 billion c.200 billion MM of 5 will increase MS to $2.30. An advance in technology will cause the a. $1. AD curve to shift to the left c. [5 x $400 = $2.600 billion b. $1. Long run AS curve to shift to the left e.
5 ton of steel 34. 2 tons of steel 1 ton of steel d. .0 S b.5 S e.5 S Steel in tons 20 30 32. 1 G = 1. import both grain and steel and export nothing e.5 tons of steel 33.For questions 32-34 Grain in tons 30 Alpha Beta 10 Beta’s DCC 1G=2S 1/2 G = 1 S Alpha’s DCC 1G=1S Terms of Trade 1 G = 1. the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following? Alpha Beta a. 1 ton of steel 0. export both grain and steel and import nothing d. 0. export grain and import steel b. 1 G = 0.5 S c. There is no real exchange ratio that would enable both countries to benefit.33 tons of steel 1. 1 ton of steel 2 tons of steel c. Before specialization & trade. The theory of comparative advantage implies that Alpha would find it advantageous to a. between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade. also referred to as the terms of trade. 1 G = 3.0 S d. 1 ton of steel 1 ton of steel b. At what real exchange ratio. since Alpha has an absolute advantage in both goods.5 tons of steel e. 1 G = 1. a. trade 1 ton of grain for 0. export steel and import grain c.
The AD curve will shift to the left to restore long-run equilibrium. e. The economy is in long-run equilibrium. b. The long-run AS curve will shift to the right to restore long-run equilibrium. d. the SRAS curve will shift to left to restore long-run equilibrium. Increase Not change curve but a change in business taxes would be. An increase in personal income taxes will most likely cause AD and AS to change in which of the following ways in the short run? Aggregate Demand Aggregate Supply a. Without a fiscal policy stimulus.AD PL LRAS SRAS SRAS YF Real GDP 35. Decrease Increase e. which decreases AD. Not change Decrease An increase in personal income taxes will make b. . According to the graph above. 36. As wages increase. Not change Increase consumers poorer which makes them cut back c. which of the following is true about the long-run equilibrium of the economy depicted? a. the economy will remain in a recession. c. Personal income taxes are not a determinant of the AS d. Decrease Not change on consumption.
37. Cyclical b. When an economy is operating below the full-employment level of output. The required reserve ratio c. c. It determines the size of the simple spending multiplier. Frictional c. It increases as incomes increase because increases in income cause people to spend more. The discount rate b. e. Seasonal d. Structural 38. b. Which of the following is true about the marginal propensity to consume? a. It is the same as the m oney multiplier. Which type of unemployment would increase if workers lost their jobs because of a recession? a. Search e. It is equal to the average propensity to consume for people with low incomes. an appropriate monetary policy would be to increase which of the following? a. The international value of the dollar d. d. 39. Government expenditure on goods and services . Open market purchases of government bonds e. It is the percentage of total income that is spent on consumption.
Contractionary Expansionary 41. Which of the following combinations of monetary and fiscal policies would best achieve this goal? Monetary Policy Fiscal Policy a. the government had a balanced budget . net exports were negative exports. net exports were positive We consumed more imports than we sold c. spending on consumption. In one year. the money supply increased b.40. Expansionary Contractionary from going up. and government purchases was equal to 103% of a country’s GDP. policymakers could cut G or d. e. Policymakers wish to maintain the price level but want to encourage greater investment. Expansionary Expansionary raise taxes [contractionary] to prevent this. This would be possible only if a. investment. Assume that the economy is at full employment. e. the government ran a budget surplus greater than our GDP. No change Contractionary Expansionary monetary policy would result b. Expansionary No change in lower interest rates. To keep prices c. causing more investment in real capital. which would make our spending d.
No change Price Level Decrease Increase Decrease Increase No change With no intervention in this recession. An economy is in a short-run equilibrium at a level of output that is less than fullemployment output. output would increase. the AS curve. and real output will change in which of the following ways? AS Curve a. the surpluses would result in lower prices. Decrease e. Decrease 43. the price level. Shift to the left c. If there were no fiscal or monetary policy interventions. That Increase results in lower PL and an Increase increase in real output. Increase b. When firms restructure their operations to decrease production costs. Shift to the right d. Decrease d. Increase c. . Shift to the left b. Workers would then accept lower wages. Shift to the right Price Level Increase Increase Increase Decrease Decrease Real Output Increase Lower production costs means No change more profits and a shift of the AS curve to the right. As more are hired back.42. which of the following changes in output and the price level would occur in the long run? Output a. Shift to the right e.
44. “Buying” bonds means “bigger” supply of money and lower Fed Funds Rate. Increase b. decreasing the discount rate c. This would decrease demand for Mexico’s exports. Assume that the world operates under a flexible exchange rate system. bringing on higher prices. increasing the discount rate d. selling government bonds on the open market e. decreasing the reserve requirement b. Decrease e. depreciating the peso. Increase c. Increase d. Mexico’s inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate a. 45. buying government bonds on the open market The Fed “targets” the Fed Funds Rate by buying & selling bonds. The Fed decreases the federal funds rate by a. . If the central bank of Mexico increases its MS but other countries do not change theirs. Decrease International Value of the Peso Appreciate Depreciate No change Appreciate Depreciate An increase in Mexico’s MS means “more pesos chasing the same goods” as before.
Not in Labor Force – 80 46.3% b. Based on the information above. 6. an increase in the real GDP and a decrease in the interest rate d. Assuming a balanced budget before the decrease in T means the G would have to borrow.0% c. With interest rates moving in opposite directions with the two policies. an increase in unemployment and an increase in the interest rate c.38% e. Decreasing the discount rate would also lead to more real GDP but would result in a lower interest rate.Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. Employed – 94. 4. an increase in unemployment and a decrease in the interest rate b.5% 6/100 x 100 = 6% 47. Unemployed – 6.0% d. The combined actions will result in a. . this make them indeterminate. 3. pushing up interest rates. 6. an increase in the real GDP and an indeterminant change in the interest rate Decreasing taxes would increase C. increase AD and real GDP. 7. an increase in the real GDP and an increase in the interest rate e. what is the unemployment rate for Country X? a.Labor Market Data for Country X (in millions of persons) Population – 180.
5 billion b.5 billion d. a $70 billion increase in government spending could cause a maximum increase in output of a.75. $52.48. $70 billion c. if the MPC is equal to 0. In a closed economy with only lump-sum taxation. $210 billion e. A unit of account e. Which of the following is NOT a function of fiat money? a. A standard of deferred payment d. A medium of exchange c. A store of value b. $122. A source of intrinsic value . $280 billion 4 x $70 = $280 49.
So real GDP would not change. LRAS curve to the right therefore shifting the SRAS curve to the left. d. An increase in personal income taxes e. A decrease in the real interest rate 51. which of the following will most likely create demand-pull inflation in the short run? a. SRAS curve to the right e. SRAS curve to the left . AD curve to the right Productivity is an AS Shifter so a decrease in b. An increase in the discount rate d. Under rational expectations an announced expansion in the money supply will change nominal and real gross domestic products (GDP) in which of the following ways? Nominal GDP Real GDP RATEX implies that people “expect” more a.50. A decrease in the money supply c. A decrease in government spending b. AD curve to the left labor productivity results in having to hire more workers and cutting corporate profits. No change Decrease e. b. just nominal GDP. Increase Increase inflation with the increase in the MS. When an economy is at full employment. They Will negotiate higher raises with this in mind. A decrease in labor productivity will shift the a. No change No change 52. Increase No change workers will be hired. d. c. Increase Decrease Business profits will not increase so no more c.
$1.53.000 Now.000. $900 of the MS didn’t increase. Workers would now accept lower wage increases which moved the SRAS curve right. $8 YR YR Y* YI 54. It just changed from currency to DD. $10 b. The legal RR is 10%. the maximum increase in the total money supply will be a. increasing real GDP. When little Emilia deposited the $100. with the RR at 10%. $90 was loaned by the first bank and with e. In the long run. Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains.100 a MM of 10. Increase Decrease $10 e. $100 Remember that currency is also MS. Decrease Decrease AD2 b. real GDP and the price level will change in which of the following ways? Real GDP Price Level AD1 LRAS SRAS1 a. No change Increase The decrease in AD resulted in surpluses & caused prices to drop. So. . if AD decreases. $1. No change Decrease SRAS2 -20% d. the MS increased by $900 more as the TMS eventually became $10. the $100 bill was MS when this began. d. Decrease Increase c. the composition c. If Emilia deposits the $100 bill she received as a graduation gift from her grandfather into her checking account.
if Mexico’s rate of inflation increases relative to its trading partners. Which of the following household purchases will be counted as part of gross private investment in a country’s GDP? a. Corporate bonds d. A newly constructed home The first three are purely financial transactions. Shares of a company stock c. depreciating the peso. Mexico’s imports and exports will most likely change in which of the following ways? Imports a. Decrease c. the increase in the peso currency price relative to other countries makes their goods cheaper so their imports increase while their exports decrease as they have to pay more pesos . The purchase of the new car would be counted as consumption. 56. Government bonds b. Increase d. No change Exports Decrease Increase Decrease Increase No change A higher price level in Mexico will decrease demand for their products. . Decrease b. Assuming fixed exchange rates. Increase e. not investment. A new car for personal use e. However.55.
A decrease in the expected price level If PL is expected to decrease. An increase in AD will cause which of the following? a. firms will hire more workers and SRAS will shift to the right. With lower resource cost [wages] anticipated. A movement along a given short-run Phillips curve b. which we didn’t d. Shifts of the SRPC are caused by supply shocks. .57. The long-run Phillips curve to become horizontalAn increase in AD would move cause c. The short-run Phillips curve to shift to the left a movement up and to the left on the d. An increase in the wage rate b. The long-run Phillips curve to shift to the right SRPC. Which of the following would cause the short-run AS curve to shift to the right? a. A decrease in the capital stock e. An increase in the natural rate of unemployment d. An increase in the interest rate c. 58. The long-run Phillips curve to shift to the left have here. then workers will not demand as large of wage increases as in the past.
Not change Trade Deficit Become smaller Become larger Become smaller Become larger Not change The budget deficit means the government is borrowing more. Appreciate c. Appreciate b. The higher interest rate attracts more foreign investors. The stronger dollar makes our exports more expensive and imports cheaper. Depreciate e. . d. As far as the legal-institutional environment with the government. The money supply Business taxes are determinants of both AD and AS. Unemployment in business taxes means they have more profits and will invest c. A decrease in business taxes would lead to an increase in national income by increasing which of the following? a. Depreciate d. AS only it is more favorably so that will result in an increase in AS. increasing AD. an increase in government budget deficit tends to cause the international value of a country’s currency and its trade deficit to change in which of the following ways? Value of Currency a. The decrease b. e.59. Both AD and AS 60. therefore increasing the trade deficit. increasing demand for the dollar and appreciating the dollar. In an open economy. AD only more. which pushes up the interest rate.
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