Test Bank For Macroeconomics Public and Private Choice 14th Edition James D Gwartney

Test Bank for Macroeconomics: Public and Private
Choice, 14th Edition: James D. Gwartney
To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-macroeconomics-public-and-private-c
hoice-14th-edition-james-d-gwartney/
Test Bank for Macroeconomics: Public and Private Choice, 14th Edition: James D. Gwartney
Macroeconomics Chapter 9 A—An Introduction to Basic Macroeconomic Markets
MULTIPLE CHOICE
1. Which of the following is a correct statement?

a. Fiscal policy is the use of tax and spending policies by Congress and the president.
b. Fiscal policy involves the control of the money supply by the Federal Reserve Bank.
c. Monetary policy involves the control of the money supply by Congress and the president.
d. Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.
ANS: A PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
STA: DISC: Monetary and fiscal policy TOP: Understanding Macroeconomics: Our Game Plan
KEY: Bloom's: Knowledge MSC: Suggested Quiz
2. The four key markets that coordinate the circular flow of income are
a. goods and services, resources, loanable funds, and foreign exchange.
b. consumption, investment, stock, and government.
c. government, household goods, bond, and business.
d. financial, corporate, stock, and loanable funds.
STA: DISC: Markets, market failure, and externalities
TOP: Four Key Markets: Resources, Goods and Services, Loanable Funds, and Foreign Exchange
KEY: Bloom's: Knowledge MSC: Suggested Quiz
3. If the price level in the current period is higher than what buyers and sellers anticipated,
a. profit margins will be unattractive and firms will expand output.
b. profit margins will be unattractive and firms will reduce output.
c. profit margins will be attractive and firms will expand output.
d. profit margins will be attractive and firms will reduce output.
ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
STA: DISC: Aggregate demand and aggregate supply
TOP: Aggregate Demand for Goods and Services KEY: Bloom's: Comprehension
MSC: Suggested Quiz
4. As the general price level in an economy rises, the aggregate quantity demanded of goods and services
falls because
a. the prices of domestic goods have risen relative to foreign goods, causing exports to fall
and imports to rise.
b. higher interest rates caused by an increase in the demand for money balances causes a
reduction in current investment and consumption.
c. the value of money will fall, reducing the real wealth and, thus, the consumption of
persons holding money balances.
d. all of the above are correct.
ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
MSC: Suggested Quiz
5. Other things constant, if the cost of labor goes down, the profits of firms will
a. increase, and short-run aggregate supply will shift to the right.
b. fall, and short-run aggregate supply will shift to the left.
Visit TestBankBell.com to get complete for all chapters

c. increase, and long-run aggregate supply will shift to the right.
d. fall, and long-run aggregate supply will shift to the left.
ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
TOP: Aggregate Supply of Goods and Services KEY: Bloom's: Comprehension
MSC: Suggested Quiz
6. Long-run equilibrium in the goods and services market requires that

a. aggregate supply equals aggregate demand and that decision makers correctly anticipate
the level of prices.
b. the unemployment rate is zero.
c. prices are neither increasing nor decreasing.
d. aggregate supply be larger than aggregate demand.
STA: DISC: Equilibrium TOP: Long-Run Equilibrium
KEY: Bloom's: Comprehension MSC: Suggested Quiz
7. The resource market is important from a macroeconomic perspective because

a. it coordinates the allocation of productive resources and determines the costs of
production.
b. it determines the interest rates faced by borrowers and lenders.
c. inflation rates are set in the resource market by the government.
d. resource prices determine the position of the long-run aggregate supply curve.
STA: DISC: Markets, market failure, and externalities TOP: Resource Market
8. If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has
a. appreciated, and Americans will find English goods cheaper.
b. appreciated, and Americans will find English goods more expensive.
c. depreciated, and Americans will find English goods cheaper.
d. depreciated, and Americans will find English goods more expensive.
ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
STA: DISC: Markets, market failure, and externalities TOP: Foreign Exchange Market
9. If the real interest rate in the domestic loanable funds market increases,
a. firms will have an added incentive to undertake investment projects.
b. households will save less.
c. the net inflow of foreign capital will tend to increase.
d. it will be cheaper to purchase goods and services now rather than in the future.
STA: DISC: Markets, market failure, and externalities TOP: Loanable Funds Market
10. When equilibrium is present in the foreign exchange market, which of the following will tend to be in
balance?
a. the value of goods exported and the value of goods imported
b. real and nominal interest rates
c. imports plus capital outflow and exports plus capital inflow
d. tax revenues and government expenditures
11. The use of government taxation and expenditures to achieve macroeconomic goals is called
a. cyclical policy.
b. monetary policy.
c. fiscal policy.
d. industrial policy.
ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
KEY: Bloom's: Knowledge
12. Which of the following provides the most accurate description of monetary policy?
a. the deliberate control of the money supply to achieve macroeconomic goals
b. the use of the government's regulatory powers to improve economic efficiency
c. the government provision of goods to improve economic efficiency
d. the use of government taxation and expenditures to achieve macroeconomic goals
KEY: Bloom's: Comprehension
13. Controlling the money supply to achieve desired macroeconomic goals is called
a. monetary policy.
b. cyclical policy.
c. fiscal policy.
d. industrial policy.
14. The four key markets in the simple AD/AS model are
a. food, housing, clothing, and automobiles.
b. consumption, investment, bond, and foreign trade.
c. goods and services, resources, foreign exchange, and loanable funds.
d. labor, public goods, bond, and the stock market.
15. Which of the following best characterizes the circular flow of income?
a. Households buy goods and services from businesses, and businesses sell goods and
services to households.
b. The government purchases resources from businesses and households and then sells goods
and services to businesses and households.
c. Businesses buy resources from the government, and households buy goods and services
from businesses.
d. Businesses buy resources from households, and households use their income to buy goods
and services from businesses.
16. The market that coordinates the exchange of productive inputs between the household and business
sectors is the
a. stock market.
b. goods and services market.
c. resource market.
d. loanable funds market.
17. The market for labor services is included in the

a. loanable funds market.
b. goods and services market.
c. resource market.
d. financial market.
18. A positive level of net exports contributes directly to

a. demand in the resources market.
b. supply in the loanable funds market.
c. demand in the loanable funds market.
d. demand in the goods and services market.
19. The actions of borrowers and lenders are coordinated by

a. the interest rate in the loanable funds market.
b. the government in the resources market.
c. businesses in the resources market.
d. the interest rate in the goods and services market.
20. Saving is
a. the sum of the funds people hold in their checking accounts.
b. after-tax income that is not spent on consumption.
c. always equal to consumption.
d. equal to disposable income plus consumption.
ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
21. The portion of after-tax income a consumer does not spend on consumption is called
a. investment.
b. saving.
c. supply.
d. temporary income.
22. Which of the following markets coordinates transactions with foreigners that involve the exchange of
currency?
a. the resource market
b. the stock market
c. the foreign exchange market
d. the loanable funds market
23. In the foreign exchange market, the price of one nation's currency in terms of the currency of another
nation is known as the
a. inflation rate.
b. wage rate.
c. interest rate.
d. exchange rate.
24. Other things the same, a decrease in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.
TOP: Aggregate Demand for Goods and Services KEY: Bloom's: Knowledge
25. Other things the same, an increase in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate falls.
d. more money, so they lend less, and the interest rate rises.
26. As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?
a. consumption and net exports would decline
b. consumption and net exports would increase
c. consumption would increase and net exports would decrease
d. consumption would decrease and net exports would increase
e. consumption and net exports would remain constant
27. Which of the following is not included in aggregate demand?

a. purchases of stock and bonds
b. purchases of services such as visits to the doctor
c. purchases of capital goods such as equipment in a factory
d. purchases by foreigners of consumer goods produced in the United States
28. Which of the following properly describes the interest-rate effect of aggregate demand?
a. A higher price level leads to higher money demand, higher money demand leads to higher
interest rates, a higher interest rate increases the quantity of goods and services demanded.
b. A higher price level leads to higher money demand, higher money demand leads to lower
interest rates, a higher interest rate reduces the quantity of goods and services demanded.
c. A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate reduces the quantity of goods and services demanded.
d. A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate increases the quantity of goods and services demanded.
29. Which of the following helps explain why the aggregate demand curve slopes downward?
a. If the price level increases, the purchasing power of the fixed quantity of money decreases,
causing people to buy less.
b. If the price level increases, the purchasing power of the fixed quantity of money increases,
causing people to buy more.
c. If domestic prices increase, we substitute domestic goods for imported goods.
d. If domestic prices decrease, we substitute imported goods for domestic goods.
30. The aggregate demand curve is downward sloping because
a. an increase in the price level will cause an increase in spending on goods and services.
b. at lower price levels, real wealth decreases, causing a decrease in the quantity demanded
of goods and services.
c. at lower price levels, interest rates increase, causing a decrease in the quantity demanded
of goods and services.
d. at lower price levels, net exports increase, causing an increase in quantity demanded of
goods and services.
31. Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the
goods and services market represents
a. nominal output or nominal GDP.
b. the interest rate.
c. real output or real GDP.
d. the consumer price index.
32. The aggregate demand curve indicates the relationship between

a. the real wage rate and the quality of resources demanded by producers of goods and
services.
b. the interest rate and the amount of loanable funds demanded by borrowers.
c. the natural rate of unemployment and the demand for goods and services when the
economy is in long-run equilibrium.
d. the general price level and the aggregate quantity of goods and services demanded.
33. For an economy, aggregate demand equals

a. consumption plus investment plus government purchases plus exports.
b. consumption plus investment plus government purchases plus (exports minus imports).
c. consumption plus investment plus (taxes minus transfers) plus (exports minus imports).
d. consumption plus investment plus government purchases plus (imports minus exports).
34. In the AD/AS model, the aggregate demand for goods and services is composed of the purchases made
by
a. households and foreigners (net exports).
b. businesses, bondholders, and foreigners (net exports).
c. businesses and governments.
d. consumers, investors, governments, and foreigners (net exports).
35. The aggregate demand curve slopes downward indicating that

a. an increase in the general price level will reduce the aggregate quantity of goods and
services demanded.
b. an increase in the general price level will increase the aggregate quantity of goods and
services demanded.
c. a change in the interest rate will alter the aggregate quantity of goods and services
demanded.
d. consumers substitute between domestic-made and foreign-made goods as their relative
prices change.
36. Other things the same, a decrease in the price level makes the dollars people hold worth
a. more, so they are willing to spend more.
b. more, so they are willing to spend less.
c. less, so they are willing to spend more.
d. less, so they are willing to spend less.
37. Other things the same, an increase in the price level makes the dollars people hold worth
a. more, so they are willing to spend more.
b. more, so they are willing to spend less.
c. less, so they are willing to spend more.
d. less, so they are willing to spend less.
38. People will spend more if the price level

a. rises because rising prices increase the real value of the fixed quantity of money.
b. rises because rising prices decrease the real value of a dollar.
c. falls because falling prices increase the real value of a dollar.
d. falls because falling prices decrease the real value of a dollar.
39. The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the
price level rises,
a. real wealth falls, interest rates rise, and net exports fall.
b. real wealth falls, interest rates rise, and net exports rise.
c. real wealth rises, interest rates fall, and net exports fall.
d. real wealth rises, interest rates fall, and net exports rise.
40. The change in the aggregate quantity of goods and services demanded in the U.S. is based on the logic
that as the price level falls,
a. real wealth falls, interest rates rise, and net exports fall.
b. real wealth falls, interest rates rise, and net exports rise.
c. real wealth rises, interest rates fall, and net exports fall.
d. real wealth rises, interest rates fall, and net exports rise.
41. Which of the following helps explain why the aggregate quantity demanded of goods and services is
inversely related to prices within the framework of the AD/AS model?
a. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods
and services.
b. As prices fall, the monetary authorities will have to increase the money supply, which will
lead to an increase in the quantity of goods and services purchased.
c. As prices fall, the government will have to reduce taxes, which will lead to an increase in
the quantity of goods and services purchased.
d. As prices fall, the wealth of people holding the fixed quantity of money increases, causing
them to expand their purchases of goods and services.
42. Other things equal, which of the following is true?

a. A reduction in prices will increase the real wealth of those holding a fixed quantity of
money.
b. A reduction in prices will lead to a decline in net exports.
c. A reduction in prices will increase the scarcity of money, raise the real interest rate, and,
thereby, encourage investment and consumption.
d. A reduction in prices will increase profit margins and, thereby, stimulate additional
investment.
43. As prices rise, people will buy fewer goods and services because
a. the interest rate has declined.
b. aggregate demand has increased.
c. the purchasing power of the fixed quantity of money has declined.
d. the income of households has increased.
44. When prices rise, consumers and businesses hold larger money balances. This reduces the supply of
loanable funds, increases the interest rate, and discourages both consumption and investment. This
process is called the
a. interest rate effect.
b. real balance effect.
c. investment effect.
d. disinvestment effect.
45. The international substitution effect exists because a

a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will make domestically produced goods less expensive relative to foreign
goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will encourage Americans to import more foreign goods.
ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
46. If prices in the United States rose, which of the following could be directly attributed to the
international substitution effect?
a. Americans reduce their purchases of Japanese cars.
b. Australians buy more American surfboards.
c. Europeans purchase fewer American-made personal computers.
d. Americans sell more wheat to India.
47. Ceteris paribus, a decrease in the U.S. price level will cause
a. an increase in U.S. exports.
b. an increase in U.S. imports.
c. the aggregate demand curve to shift to the right.
d. the aggregate demand curve to shift to the left.
48. For most firms in the economy, the largest part of resource costs is the cost of
a. labor.
b. capital.
c. property and machinery.
d. land and natural resources.
49. If resource prices are fixed and the product selling price rises, then
a. profits will decrease.
b. profits will increase.
c. profits will remain constant.
d. both profits and output will decrease.
50. If scientific research produces a technological breakthrough in the production of computer memory,
then
a. business costs will increase, profits will fall, and production will decrease.
b. business costs will fall, but profits will also fall, and production will decrease.
c. business costs will fall, profits will improve, and production will increase.
d. profits will increase because businesses will cut back production.
TOP: Aggregate Supply of Goods and Services KEY: Bloom's: Application
51. Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will
a. increase output when product prices increase.
b. keep production levels constant when product prices decrease.
c. keep their product prices constant even if the demand for their good increases.
d. keep their product prices constant even if the demand for their good decreases.
52. If the actual price level exceeds the expected price level reflected in long-term contracts,
a. many firms will find production more profitable than they had expected and will increase
the quantity of output supplied.
b. many firms will find production less profitable than they had expected and will decrease
c. many firms will find production more profitable than they had expected and will decrease
d. many firms will find production less profitable than they had expected and will increase
53. If the actual price level is lower than the expected price level reflected in long-term contracts,
a. many firms will find production more profitable than they had expected and will increase
the quantity of output supplied
b. many firms will find production less profitable than they had expected and will decrease
c. many firms will find production more profitable than they had expected and will decrease
d. many firms will find production less profitable than they had expected and will increase
54. Because many resource prices are set by long-term contracts, in the short run
a. costs will increase by more than product prices when demand increases.
b. costs will decrease when the demand for products increases.
c. costs will increase by less than product prices when demand increases.
d. costs will decrease by more than product prices when demand decreases.
55. If the actual price level exceeds the expected price level reflected in long-term contracts,
a. firms will find production more profitable than they had expected and will decrease the
quantity of output supplied
b. firms will find production less profitable than they had expected and will decrease the
c. firms will find production less profitable than they had expected and will increase the
d. unemployment will decrease
56. The short-run aggregate supply curve shows the relationship between
a. the general level of prices and the quantity of goods and services purchased by all
consumers in the economy.
b. the general level of prices and the quantity of goods and services that domestic firms will
supply.
c. the interest rate and the quantity of goods and services that domestic firms will supply.
d. the money supply and the quantity of goods and services that domestic firms will supply.
57. The aggregate supply curve indicates the

a. relationship between prices and the aggregate quantity of goods and services purchased by
consumers, investors, governments, and foreigners (net exports).
b. relationship between prices and the natural rate of unemployment.
c. relationship between the real wage rate and the quantity of labor supplied by households.
d. quantity of goods and services producers will supply at different price levels.
58. In the context of aggregate supply, the short run is defined as the period during which
a. some prices are set by contracts and cannot be adjusted.
b. prices can change, but neither aggregate supply nor aggregate demand can shift.
c. individuals have sufficient time to modify their behavior in response to price changes.
d. quantity changes cannot occur in response to changes in relative prices.
59. In the context of aggregate supply, the long run is defined as the period during which
a. some prices are set by contracts and cannot be adjusted.
b. prices can change, but neither aggregate supply nor aggregate demand can shift.
c. individuals have sufficient time to modify their behavior in response to price changes.
d. quantity changes cannot occur in response to changes in relative prices.
60. Which of the following explains why higher prices in the goods and services market will lead to an
upward sloping short-run aggregate supply curve?
a. The higher prices will temporarily improve profit margins because many of the cost
components of firms will be fixed in the short run.
b. The higher prices will reduce the purchasing power of the fixed quantity of money and,
thereby, stimulate additional output.
c. The higher prices will expand the economy's resource base and, thereby, stimulate
additional output.
d. The higher prices will improve technology and, thereby, stimulate additional output.
TOP: Aggregate Supply of Goods and Services KEY: Bloom's: Application
61. The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases
in prices will
a. increase aggregate demand as consumers buy more.
b. decrease aggregate demand as consumers buy less.
c. cause firms to expand output since the higher product prices will improve profitability.
d. cause firms to reduce output since the higher product prices will decrease profit margins.
62. Which of the following is true?

a. The long-run aggregate supply curve slopes upward to the right.
b. The aggregate quantity demanded of goods and services slopes downward to the right
because it is simply the sum of the demand curves for each individual product.
c. An unanticipated increase in demand will increase prices and improve profit margins in
the goods and services market, leading firms to expand output.
d. An anticipated increase in demand will lead to higher resource prices, which will cause
firms to expand their output.
63. Which of the following would generally cause firms to expand output in the short run?
a. a proportional increase in the prices of goods and services and the costs of producing them
b. higher profit margins as the result of an unexpected increase in the prices of goods and
services
c. an unexpected reduction in aggregate demand
d. an increase in wages and the prices of other resources
64. In the short run, an unexpected increase in prices will

a. reduce resource prices and increase the quantity of goods supplied.
b. decrease the productive capacity of firms and decrease the quantity of goods supplied.
c. increase the profits of firms, thereby leading them to expand output.
d. increase the profits of firms, thereby leading them to reduce output.
65. In the short run, a price increase in the goods and services market will
a. increase the purchasing power of money.
b. improve producer profits and, thereby, induce suppliers to expand output.
c. increase resource prices, lower profits, and lead to a decline in output.
d. reduce the natural rate of unemployment.
66. If the price level in the current period is lower than what buyers and sellers anticipated,
a. profit margins will be unattractive, and firms will expand output.
b. profit margins will be unattractive, and firms will reduce output.
c. profit margins will be attractive, and firms will expand output.
d. profit margins will be attractive, and firms will reduce output.
67. The supply of resources, level of technology, and the quality of an economy's institutional
arrangements provide the constraint that determines the shape of the
a. short-run aggregate supply curve.
b. long-run aggregate supply curve.
c. supply of loanable funds.
d. aggregate demand curve.
68. Once decision makers fully adjust to an increase in prices,

a. the natural rate of unemployment will decline.
b. competitive forces will restore the usual relationship between product prices and costs.
c. producers' profits will exceed their normal level.
d. producers will expand output beyond the economy's potential.
69. The vertical long-run aggregate supply curve reflects the fact that in the long run, an increase in the
price level
a. will not alter the economy's maximum sustainable rate of output.
b. will increase the economy's maximum sustainable rate of output.
c. will reduce the quantity of goods and services purchasers will demand.
d. will improve the overall efficiency of resource use.
70. A vertical long-run aggregate supply curve indicates that

a. an increase in the price level will not expand an economy's output capacity in the long run.
b. outputs greater than the long-run supply constraint cannot be achieved.
c. an increase in the price level will permit the economy to achieve a higher level of output.
d. an increase in the price level will promote technological change and more rapid economic
growth.
71. Which of the following basic economic concepts most clearly provides the foundation for the long-run
aggregate supply curve?
a. the law of demand
b. the production possibilities curve
c. the law of comparative advantage
d. the law of diminishing marginal utility
72. If the actual price level is lower than the expected price level reflected in long-term contracts,
a. the actual rate of unemployment will be less than the natural rate of unemployment.
b. the actual rate of unemployment will exceed the natural rate of unemployment.
c. the natural rate of unemployment will rise.
d. the natural rate of unemployment will fall.
STA: DISC: Equilibrium TOP: Equilibrium in the Goods and Services Market
73. In the aggregate demand and aggregate supply model,

a. the factors that cause the individual demand curve to slope downward are the same as the
factors that cause the aggregate demand curve to slope downward.
b. the factors that cause the individual supply curve to slope upward are the same as the
factors that cause the short-run aggregate supply curve to slope upward.
c. the upward-sloping aggregate demand curve intersects the downward-sloping short-run
aggregate supply curve to determine the economy's price level and GDP.
d. the upward-sloping short-run aggregate supply curve intersects the downward-sloping
aggregate demand curve to determine the economy's price level and GDP.
74. The potential output of an economy is the level of output produced when the
a. real wage equals the nominal wage.
b. price level is constant.
c. expected real wage equals the inflation rate.
d. expected price level equals the unemployment rate.
e. expected price level equals the actual price level.
ANS: E PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
75. When equilibrium is present, if market conditions do not change,

a. the current price will tend to rise in the future, and the current quantity will tend to fall.
b. the current price will tend to fall in the future, and the current quantity will tend to rise.
c. the current price and quantity will tend to persist in the future.
d. the current price will tend to persist in the future, but the current quantity will tend to rise.
76. In the short run, if prices were below equilibrium,

a. excess aggregate demand for goods and services would place downward pressure on
prices.
b. excess aggregate supply of goods and services would place downward pressure on prices.
c. excess aggregate demand for goods and services would place upward pressure on prices.
d. excess aggregate supply of goods and services would place upward pressure on prices.
77. Long-run equilibrium in the goods and services market requires that decision makers who agreed to
long-term contracts must have
a. incorrectly anticipated the level of prices when they made the agreements.
b. correctly anticipated the level of prices when they made the agreements.
c. correctly anticipated the natural rate of unemployment when they made the agreements.
d. correctly anticipated actual GDP when they made the agreements.
78. Within the framework of the AD/AS model, if a long-run equilibrium is present in the goods and
services market,
a. decision makers will have accurately forecast the current price level when they arrived at
resource price and loanable funds agreements.
b. the profit rates of the firms will generally exceed the competitive level.
c. the actual rate of unemployment will be less than the natural rate of unemployment.
d. output will exceed the economy's long-run sustainable output.
79. Within the framework of the AD/AS model, if a long-run equilibrium is present in the goods and
services market,
a. decision makers will have accurately forecast the current price level when they arrived at
resource price and loanable funds agreements.
b. the profit rates of the firms will generally exceed the competitive level.
c. the actual rate of unemployment will fall below the natural rate of unemployment.
d. the current rate of output will be sustainable in the future.
e. both a and d are correct.
ANS: E PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
80. Output in the goods and services market will be sustained into the future
a. if aggregate demand and short-run aggregate supply are in balance.
b. only when the prior choices of decision makers were based on a correct anticipation of
prices.
c. only when prices are rising.
d. only when wage rates are declining.
81. When an economy is in long run equilibrium,

a. it will be impossible to sustain the current rate of output in the future.
b. the interest rate will decline.
c. the foreign exchange value of the dollar will tend to appreciate.
d. the actual and natural rates of unemployment will be equal.
82. Which of the following is necessarily true when an economy is in long-run equilibrium?
a. Prices will be constant (that is, inflation will be zero).
b. The actual output will be less than the full-employment (or potential) output.
c. The actual rate of unemployment equals the natural rate of unemployment.
d. The output of the economy will be greater than the full-employment output.
83. When the actual GDP equals the full-employment level of GDP, the
a. economy is in long-run equilibrium.
b. price level must be rising.
c. expected inflation must be zero.
d. aggregate supply curve is not constrained by the scarcity of resources.
84. When an economy operates at its long-run potential output level,
a. aggregate demand will exceed aggregate supply in the goods and services market.
b. unemployment will decline to an abnormally low rate that cannot be sustained in the long
run.
c. the actual rate of unemployment will exceed the natural rate of unemployment.
d. the natural and actual rates of unemployment will be equal.
85. Which of the following will always be true when an economy is in long-run equilibrium?
a. The level of prices will be constant (that is, inflation will be zero).
b. Actual output will exceed the potential output.
c. The actual rate of unemployment will be less than the natural rate of unemployment.
d. The output of the economy will correspond with the full-employment output.
86. From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent.
When inflation is constant for an extended period, which of the following is most likely?
a. People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will approach the natural rate of unemployment.
b. People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will exceed the natural rate of unemployment.
c. The actual inflation rate will be greater than the anticipated rate, leading to an actual rate
of unemployment that exceeds the natural rate of unemployment.
d. Actual inflation will be less than the anticipated rate, leading to an actual rate of
unemployment that exceeds the natural rate of unemployment.
KEY: Bloom's: Application
87. When the actual rate of unemployment is less than the natural rate of unemployment, the economy
a. operates at an output greater than its long-run potential.
b. operates at its maximum sustainable output.
c. must also be experiencing stable prices (zero inflation).
d. operates at an output less than its long-run potential.
88. The actual rate of unemployment will be greater than the natural rate of unemployment when
a. the actual output is less than the economy's potential output.
b. the actual output is greater than the economy's potential output.
c. the actual output is equal to the economy's potential output.
d. the inflation rate has been relatively constant for several years.
89. When prices in the goods and services market are below the level anticipated,
a. output will temporarily exceed the economy's long-run potential.
b. output will temporarily fall short of the economy's long-run potential.
c. output will be equal to the economy's long-run potential.
d. the actual rate of unemployment will be less than the natural rate of unemployment.
90. An unexpected sharp reduction in inflation will most likely result in

a. the rapid growth of output and employment.
b. a reduction in the actual rate of unemployment.
c. a reduction in the natural rate of unemployment.
d. a temporary increase in unemployment and a decline in real output.
91. An unanticipated reduction in the level of prices in the goods and services market, which results in a
temporary increase in real wage rates, will
a. increase the natural rate of unemployment.
b. reduce the natural rate of unemployment.
c. result in an actual rate of unemployment that is less than the natural rate of unemployment.
d. result in an actual rate of unemployment that is greater than the natural rate of
unemployment.
92. Which of the following will most likely result from an unexpected increase in prices that decreases
real wages and resource prices?
a. a decrease in unemployment
b. an increase in unemployment
c. a decrease in the nominal interest rate
d. a decrease in aggregate supply and real output
93. An unanticipated increase in the level of prices in the goods and services market, which results in a
temporary reduction in real wage rates, will
a. decrease the natural rate of unemployment.
b. increase the natural rate of unemployment.
c. result in an actual rate of unemployment that is less than the natural rate of unemployment.
d. result in an actual rate of unemployment that is greater than the natural rate of
unemployment.
94. Within the framework of the AD/AS model, when the current price level in the goods and services
market is above the level anticipated at the time decision makers agreed to long-term resource
contracts,
a. producer profits will fall, leading to a reduction in output.
b. the natural rate of unemployment will rise.
c. the actual rate of unemployment will fall below the natural rate of unemployment.
d. output will be temporarily below the economy's long-run sustainable output.
95. The resource market involves transactions dealing with

a. natural resources and financial services.
b. the borrowing and lending of financial capital.
c. the buying and selling of final goods and services.
d. labor services, natural resources, and physical capital.
96. Other things constant, an increase in resource prices will

a. increase the demand for goods and services.
b. increase the cost of producing goods and services, which will lead to a higher price level.
c. reduce costs and improve profit margins, which will lead to an increase in aggregate
supply in the goods and services market.
d. cause the natural rate of unemployment to rise.
97. Other things constant, a decrease in resource prices will lead to

a. reduced profits and a reduction in short-run aggregate supply.
b. increased profits and a reduction in short-run aggregate supply.
c. reduced profits and an increase in short-run aggregate supply.
d. increased profits and an increase in short-run aggregate supply.
98. Other things constant, a decrease in aggregate demand will

a. lead to a decrease in the demand for resources.
b. cause an increase in the general level of prices.
c. result in higher nominal wage rates.
d. reduce the rate of unemployment.
99. Other things constant, a decrease in aggregate demand will lead to
a. a decrease in the demand for resources.
b. an increase in the demand for resources.
c. an increase in the general level of prices.
d. a reduction in the natural rate of unemployment.
100. Which of the following will most likely cause a decrease in short-run aggregate supply in the goods
and services market?
a. an increase in the productivity of labor
b. a reduction in the price of crude oil, a major imported commodity
c. an increase in resource prices
d. favorable weather conditions in agricultural areas
101. For a major country with extensive capital flows, what is the effect of an increase in interest rates?
a. There will be an inflow of capital, a currency depreciation, and increased net exports.
b. There will be an inflow of capital, a currency depreciation, and reduced net exports.
c. There will be an outflow of capital, a currency depreciation, and increased net exports.
d. There will be an inflow of capital, a currency appreciation, and reduced net exports.
102. For a major country with extensive capital flows, what is the effect of a decrease in interest rates?
a. There will be an inflow of capital, a currency depreciation, and increased net exports.
b. There will be an inflow of capital, a currency depreciation, and reduced net exports.
c. There will be an outflow of capital, a currency depreciation, and increased net exports.
d. There will be an inflow of capital, a currency appreciation, and reduced net exports.
103. Which of the following groups would most likely benefit from unanticipated inflation?
a. borrowers
b. lenders
c. creditors
d. pensioners
104. If both borrowers and lenders anticipate the rate of inflation correctly, then
a. borrowers will lose real income.
b. lenders will lose real income.
c. both borrowers and lenders will lose real income.
d. neither borrowers nor lenders will lose real income.
105. Gladys agrees to lend Kay $1,000 for one year at a nominal rate of interest of 5 percent. At the end of
the year prices have actually risen by 7 percent. Gladys earned a real rate of return of
a. Negative 2%.
b. 2%.
c. 5%.
d. 7%.
106. A positive nominal interest rate indicates

a. how fast the number of dollars in your savings account is rising over time.
b. how fast the purchasing power of your savings account is rising over time.
c. the number of dollars in your savings account today.
d. the purchasing power in your savings account today.
107. A positive real interest rate indicates

a. how fast the number of dollars in your savings account is rising over time.
b. how fast the purchasing power of your savings account is rising over time.
c. the number of dollars in your savings account today.
d. the purchasing power of your savings account today.
108. Which of the following is the most accurate statement about nominal and real interest rates?
a. Nominal and real interest rates always move together.
b. Nominal and real interest rates never move together.
c. Nominal and real interest rates often do not move together.
d. Nominal and real interest rates always move in opposite directions.
109. Which of the following is the most accurate statement about real and nominal interest rates?
a. Real interest rates can be either positive or negative, but nominal interest rates must be
positive.
b. Real interest rates and nominal interest rates must be positive.
c. Real interest rates must be positive, but nominal interest rates can be either positive or
negative.
d. Real interest rates and nominal interest rates can be either positive or negative.
110. Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.
a. The dollar value of savings increased at 2 percent, and the value of savings measured in
goods increased at 3 percent.
b. The dollar value of savings increased at 1 percent, and the value of savings measured in
c. The dollar value of savings increased at 3 percent, and the value of savings measured in
d. The dollar value of savings increased at 4 percent, and the value of savings measured in
111. Suppose the nominal interest rate was 5 percent and the inflation rate was 3.5 percent.
a. The dollar value of savings increased at 1.5 percent, and the value of savings measured in
goods increased at 3.5 percent.
b. The dollar value of savings increased at 3.5 percent, and the value of savings measured in
c. The dollar value of savings increased at 3.5 percent, and the value of savings measured in
d. The dollar value of savings increased at 5 percent, and the value of savings measured in
112. Other things the same, when the interest rate rises
a. people would want to lend more, making the supply of loanable funds increase.
b. people would want to lend less, making the supply of loanable funds decrease.
c. people would want to lend more, making the quantity of loanable funds supplied increase.
d. people would want to lend less, making the quantity of loanable funds supplied decrease.
113. If there is a surplus of loanable funds

a. the quantity of loanable funds demanded is greater than the quantity of loanable funds
supplied and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable funds
supplied and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
114. If there is a shortage of loanable funds, then
a. the quantity of loanable funds demanded is greater than the quantity of loanable funds
supplied and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable funds
supplied and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
115. If there is shortage of loanable funds, then

a. the supply for loanable funds shifts right and the demand shifts left.
b. the supply for loanable funds shifts left and the demand shifts right.
c. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity
demanded decreases as the interest rate rises to equilibrium.
d. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity
demanded increases as the interest rate falls to equilibrium.
116. If there is surplus of loanable funds, then

a. the supply for loanable funds shifts right and the demand shifts left.
b. the supply for loanable funds shifts left and the demand shifts right.
c. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity
demanded decreases as the interest rate rises to equilibrium.
d. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity
demanded increases as the interest rate falls to equilibrium.
117. If a reform of the tax laws encourages greater saving, the result would be
a. higher interest rates and greater investment.
b. higher interest rates and less investment.
c. lower interest rates and greater investment.
d. lower interest rate and less investment.
118. What would happen in the market for loanable funds if the government were to decrease the tax rate on
interest income?
a. the supply of loanable funds would shift right and investment would increase.
b. the supply of loanable funds would shift left and investment would decrease.
c. the demand for loanable funds would shift right and investment would increase.
d. the demand for loanable funds would shift left and investment would decrease.
119. Arnold puts money into an account. One year later he sees that he has 5 percent more dollars and that
his money will buy 6 percent more goods.
a. The nominal interest rate was 11 percent and the inflation rate was 5 percent.
b. The nominal interest rate was 6 percent and the inflation rate was 5 percent.
c. The nominal interest rate was 5 percent and the inflation rate was −1 percent.
d. None of the above is correct.
120. Steven puts money into an account. One year later he sees that he has 6 percent more dollars and that
his money will buy 2 percent more goods.
a. The nominal interest rate was 8 percent and the inflation rate was 6 percent.
b. The nominal interest rate was 6 percent and the inflation rate was 4 percent.
c. The nominal interest rate was 4 percent and the inflation rate was 2 percent.
d. None of the above is correct.
121. If expected inflation is constant, then when the nominal interest rate increases, the real interest rate
a. increases by more than the change in the nominal interest rate.
b. increases by the change in the nominal interest rate.
c. decreases by the change in the nominal interest rate.
d. decreases by more than the change in the nominal interest rate.
122. If expected inflation is constant, then when the nominal interest rate falls, the real interest rate
a. falls by more than the change in the nominal interest rate.
b. falls by the change in the nominal interest rate.
c. rises by the change in the nominal interest rate.
d. rises by more than the change in the nominal interest rate.
123. If expected inflation is constant and the nominal interest rate increased 3 percentage points, the real
interest rate would
a. increase 3 percentage points.
b. increase, but by less than 3 percentage points.
c. decrease, but by less than 3 percentage points.
d. decrease by 3 percentage points.
124. The "loanable funds market" is a term used by economists to describe the
a. demand for goods and services by households.
b. market that includes resources such as labor and capital.
c. supply of goods and services by firms.
d. market that coordinates the borrowing and lending of individuals and firms.
125. The price that a person must pay in order acquire purchasing power now rather than in the future is
called
a. the interest rate.
b. the foreign exchange rate.
c. the inflationary premium.
d. the risk premium.
126. The nominal (money) rate of interest

a. is the real rate of interest plus the inflationary premium.
b. can be expected to decline as inflation accelerates.
c. fell to historic lows during the 1970s when the United States experienced double-digit
rates of inflation.
d. can be expected to increase when the government is running a budget surplus.
127. The money interest rate may be a misleading indicator of real borrowing costs when
a. the unemployment rate is high.
b. the actual rate of unemployment exceeds the natural rate of unemployment.
c. the inflation rate is high.
d. real output is declining.
128. In the loanable funds market, the price that borrowers must pay for earlier availability is the
a. inflation rate.
b. wage rate.
c. interest rate.
d. exchange rate.
129. Suppose business decision makers become more optimistic about future economic conditions and
desire additional funds to expand their plant capacity. What is the likely effect on the loanable funds
market?
a. The demand for loanable funds will increase, and the interest rate will rise.
b. The demand for loanable funds will decrease, and the interest rate will fall.
c. The supply for loanable funds will increase, and the interest rate will fall.
d. The supply for loanable funds will decrease, and the interest rate will rise.
130. Which of the following events would cause the interest rate to rise?
a. a decrease in the demand for loanable funds
b. an increase in the demand for loanable funds
c. an increase in the supply for loanable funds
d. a decrease in aggregate demand
131. The real rate of interest equals the

a. money rate of interest minus the expected inflation rate.
b. money rate of interest plus the expected inflation rate.
c. inflationary premium.
d. nominal rate of interest.
132. The real rate of interest is

a. interest paid by commercial banks.
b. interest paid by the Fed.
c. equal to the money rate of interest plus the inflationary premium.
d. the money rate of interest adjusted for inflation.
133. If the expected rate of inflation is zero, the real interest rate must
a. also equal zero.
b. be greater than the money (nominal) interest rate.
c. be equal to the money (nominal) interest rate.
d. be less than the money (nominal) interest rate.
134. The real interest rate is

a. the premium that borrowers must pay in order to acquire more purchasing power.
b. the reward lenders receive in exchange for their willingness to delay consumption into the
future.
c. equal to the money interest rate minus the inflationary premium.
d. all of the above.
135. An increase in the real interest rate will

a. increase the inflationary premium.
b. decrease the inflationary premium.
c. increase the price of current consumption relative to future consumption.
d. decrease the price of current consumption relative to future consumption.
136. An increase in the real interest rate will

a. lead to an increase in the expected inflation rate.
b. increase the real cost of purchasing goods and services in the current period relative to
future periods.
c. encourage borrowers to demand a larger quantity of funds.
d. reduce the quantity of funds supplied to the loanable funds market.
137. The difference between the money interest rate and the real interest rate is the
a. prime interest rate.
b. nominal interest rate.
c. exchange rate.
d. inflationary premium.
138. The difference between the money rate of interest and the real rate of interest is often called the
a. real balance effect.
b. prime interest rate.
c. inflationary premium.
d. discount rate.
139. Which of the following equations is accurate?

a. money interest rate = real interest rate − inflationary premium
b. real interest rate = money interest rate + inflationary premium
c. real interest rate = money interest rate − inflationary premium
d. real interest rate = money interest rate
140. The money rate of interest will be less than the real rate of interest when decision makers anticipate
a. stable prices in the future.
b. falling prices in the future.
c. inflation in the future.
d. that the money rate of interest will decline.
141. Other things constant, an increase in the expected inflation rate will
a. decrease the inflationary premium.
b. increase money (nominal) interest rates.
c. increase the supply of loanable funds.
d. decrease the money interest rate.
142. If people suddenly anticipate that inflation will rise during the next year, which of the following is
most likely?
a. Nominal interest rates will rise.
b. Nominal interest rates will decline.
c. The demand for goods and services will decline.
d. Both the real and nominal interest rates will decline.
143. Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If
the inflation rate was 3 percent, what is the real rate of interest Marta received?
a. 10 percent
b. 5 percent
c. 3 percent
d. 2 percent
e. −2 percent
144. Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070. If the
actual inflation rate was 7 percent, what was the real rate of interest Tony received?
a. 14 percent
b. 7 percent
c. 4 percent
d. 0 percent
e. −7 percent
145. A firm's level of investment is tied to the interest rate

a. only when the firm has to borrow funds to buy capital
b. only when the firm has to borrow funds to buy stocks
c. only when the firm already has the funds and could lend them
d. because the interest rate represents the opportunity cost of investing in capital
e. because investments are always made with borrowed funds
146. Suppose people expect inflation to be 3 percent during the next several years. When the real interest
rate is 5 percent, the money, or nominal interest rate, will be
a. 1 percent.
b. 4 percent.
c. 7 percent.
d. 8 percent.
147. People anticipate inflation will be 3 percent during the next several years. If this is true, when the real
interest rate is 4 percent, the money interest rate will be
a. 1 percent.
b. 3 percent.
c. 4 percent.
d. 7 percent.
148. Suppose people anticipate inflation will be 5 percent during the next several years. If the real rate of
interest is 4 percent, the money rate of interest must be
a. 1 percent.
b. 4 percent.
c. 9 percent.
d. 12 percent.
149. Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five
years. If you expect that the inflation rate during the next five years will be 2 percent annually, what
real rate of return do you expect to earn?
a. 2 percent
b. 5 percent
c. 7 percent
d. 9 percent
150. If a person earns an 8 percent nominal rate of interest on his savings account in a year when inflation is
9 percent, the person's real rate of interest is
a. −1 percent.
b. 1 percent.
c. 8 percent.
d. 9 percent.
151. If the money interest rate is 7 percent and the inflationary premium 4 percent, the real interest rate is
a. −3 percent.
b. 3 percent.
c. 4 percent.
d. 7 percent.
152. Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal interest rate
then rises to 12 percent and the inflation rate to 8 percent. It follows that the real rate of interest has
a. fallen.
b. remained the same.
c. risen to 8 percent.
d. risen to 10 percent.
153. If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of interest, the real
rate of interest is
a. 3 percent.
b. 7 percent.
c. 10 percent.
d. 17 percent.
154. When persistent inflation is present, we would expect

a. borrowers to systematically gain at the expense of lenders.
b. lenders to systematically gain at the expense of borrowers.
c. nominal interest rates to be higher than would be true if prices were stable.
d. nominal interest rates to be lower than real interest rates.
155. During a period of persistent inflation,

a. borrowers will systematically gain at the expense of lenders.
b. nominal interest rates will rise and eventually reflect the expected rate of inflation.
c. once borrowers and lenders fully anticipate the inflation rate, there is no reason to expect
that either will systematically gain relative to the other.
d. both b and c are correct.
156. Of the following, who would most likely be hurt by an unanticipated increase in the rate of inflation?
a. an individual with a 30-year fixed-rate home mortgage loan
b. the U.S. federal government because it has a large quantity of outstanding debt
c. lenders who have made long-term loans at fixed interest rates
d. Social Security recipients whose benefits are adjusted upward as the general level of prices
increases
157. If a lender expects inflation to be 5 percent, and after a loan is made, actual inflation is 10 percent,
which of the following will be true?
a. The lender will receive a lower real interest rate than he expected.
b. The loan will be repaid with dollars that are worth more than the lender expected.
c. The nominal rate of interest can be expected to fall in the future.
d. The lender will gain at the expense of the borrower.
158. Suppose the annual rate of inflation has been 3 percent during each of the last three years and that
borrowers and lenders have come to expect this rate of inflation. If the inflation rate unexpectedly
rises,
a. borrowers gain at the expense of lenders.
b. lenders will gain at the expense of borrowers.
c. the real interest rate will exceed the nominal interest rate.
d. there is no reason to expect that the inflation will help borrowers relative to lenders.
159. You just bought a $1,000 bond that is scheduled to mature in ten years. If interest rates rise during the
next six months, the market value (or price) of your bond will
a. increase.
b. decrease.
c. remain unchanged.
d. increase or decrease, depending on the marginal tax bracket you are in.
160. Falling interest rates cause the market value of previously issued bonds to
a. rise.
b. fall.
c. remain unchanged.
d. increase during periods of inflation but decline during periods of deflation.
161. As the real interest rate in the domestic loanable funds market increases,
a. the cost of purchasing goods and services during the current period will decline.
b. the net inflow of capital from abroad will increase.
c. the inflationary premium will rise, and the money rate of interest will decline.
d. the inflationary premium will fall, and the money rate of interest will rise.
162. The exchange rate is

a. another term for "interest rate."
b. another term for "growth rate."
c. the rate at which goods trade for one another across international borders.
d. the price of one currency in terms of another currency.
163. If the dollar appreciates relative to the Yen, it can be said that
a. Japanese citizens respect the United States more.
b. the dollar increases in value within the United States.
c. the Yen depreciates relative to the dollar.
d. it takes more dollars to buy Yen.
164. If the dollar depreciates relative to the Peso, it can be said that
a. Mexican citizens no longer respect the United States.
b. the dollar falls in value within the United States.
c. it takes fewer dollars to buy Pesos.
d. the Peso appreciates relative to the dollar.
165. If the quantity supplied of euro were greater than the quantity demanded, then the price of the
a. euro would rise.
b. euro would fall.
c. dollar would fall.
d. euro would be in equilibrium.
166. If the quantity of euro demanded were greater than the quantity supplied, then the price of the
a. euro would rise.
b. euro would fall.
c. dollar would rise.
d. euro would be in equilibrium.
167. Which of the following would generate a dollar demand for the euro?
a. American exports to Europe.
b. European demand for U.S. government bonds.
c. American demand for European real estate.
d. All of the above are correct.
168. Which of the following would generate a supply of euros in exchange for dollars?
a. American demand for European real estate.
b. European demand for U.S. government bonds.
c. Americans vacationing in Europe.
d. Purchase of French wines by U.S. importers.
169. Americans needing foreign currencies get those currencies from a bank. The ultimate source of these
currencies is
a. U.S. investments abroad.
b. U.S. sales to foreign countries.
c. U.S. purchases of foreign goods, services, and assets.
d. the International Monetary Fund.
170. Who among the following is most likely to favor an appreciation of the U.S. dollar?
a. a German professor visiting Chicago
b. an American farmer who depends on exports
c. an American professor on a tour of Austrian universities
d. Disney World in Orlando, Florida, a popular destination for foreign tourists
171. As the dollar depreciates, which of the following is most likely to occur?
a. More Americans will travel abroad.
b. American imports will rise.
c. More foreigners will visit the United States.
d. American firms will increase their investments abroad.
172. As the dollar appreciates, which of the following is most likely to occur?
a. More Americans will travel abroad.
b. American imports will fall.
c. More foreigners will visit the United States.
d. American firms will reduce their investments abroad.
173. If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar
has
a. appreciated. Other things the same, the appreciation would make you less likely to travel
to Mexico.
b. appreciated. Other things the same, the appreciation would make you more likely to travel
to Mexico.
c. depreciated. Other things the same, the depreciation would make you less likely to travel
to Mexico.
d. depreciated. Other things the same, the depreciation would make you more likely to travel
to Mexico.
174. If net exports are negative, then

a. net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by
Americans are greater than American assets bought by foreigners.
b. net capital outflow is positive (indicating an inflow of capital), so American assets bought
by foreigners are greater than foreign assets bought by Americans.
c. net capital outflow is negative (indicating an outflow of capital), so foreign assets bought
by Americans are greater than American assets bought by foreigners.
d. net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
175. If net exports are positive, then

a. net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by
Americans are greater than American assets bought by foreigners.
b. net capital outflow is positive (indicating an inflow of capital), so American assets bought
by foreigners are greater than foreign assets bought by Americans.
c. net capital outflow is negative (indicating an outflow of capital), so foreign assets bought
by Americans are greater than American assets bought by foreigners.
d. net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
176. If for some reason Americans wished to purchase more foreign assets, then other things the same
a. both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency exchange would fall.
b. both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency would rise.
c. the real exchange rate would rise and the quantity of dollars exchanged in the market for
foreign-currency would fall.
d. the real exchange rate would fall and the quantity of dollars exchanged in the market for
foreign-currency would rise.
177. Mary Green takes a summer course in London, England. She doesn't buy British pounds at the U.S.
airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds
for $1.65 each. Which of the following is true?
a. Green would have been better off if she had bought pounds in the United States where
U.S. dollars were cheaper.
b. Green would have been better off if she had bought pounds in the United States where
pounds were less expensive.
c. The pounds were more expensive in London because a currency is always most valued in
its home country.
d. The pounds were more expensive in the United States because they are less available
there.
e. It doesn't matter where she buys the pounds, since she can't use U.S. money anyway once
she's in England.
178. Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this
trend have on the foreign exchange market?
a. The U.S. overall demand for foreign exchange, and British pounds, in particular, will
increase.
b. The U.S. overall demand for foreign exchange, and British pounds, in particular, will
decrease.
c. The U.S. demand for British pounds will increase, but the overall demand for foreign
exchange will probably decrease.
d. The U.S. demand for British pounds will decrease, but the overall demand for foreign
exchange will probably increase.
179. Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy
more goods made in Mexico, other things constant, the
a. U.S. demand curve for Mexican pesos will shift rightward
b. U.S. demand curve for Mexican pesos will shift leftward
c. U.S. supply curve of Mexican pesos will shift leftward
d. U.S. supply curve of Mexican pesos will shift rightward
180. If the U.S. demand for British pounds increases,

a. the dollar price of a British pound will increase
b. the dollar price of a British pound will decrease
c. the exchange rate between dollars and pounds will be out of equilibrium
d. the pound will fall in value against the dollar
e. there will be no change in either the value of the dollar or the pound
181. A decrease in the dollar price of the English pound will make
a. U.S. exports to England increase.
b. U.S. exports less expensive for the English.
c. imports from England more expensive for Americans.
d. U.S. exports to England decrease.
182. The price of one country's currency in terms of another's is called

a. the interest rate.
b. the inflationary premium.
c. the discount rate.
d. the exchange rate.
183. If a U.S. dollar exchanges for 10 Mexican Pesos, the dollar price of a Peso is
a. 10 cents.
b. 90 cents.
c. $1.
d. $10.
a. appreciated, and Americans will find English goods cheaper.
b. appreciated, and Americans will find English goods more expensive.
c. depreciated, and Americans will find English goods cheaper.
d. depreciated, and Americans will find English goods more expensive.
a. appreciated, and the English will find U.S. goods cheaper.
b. appreciated, and the English will find U.S. goods more expensive.
c. depreciated, and the English will find U.S. goods cheaper.
d. depreciated, and the English will find U.S. goods more expensive.
186. An appreciation in the U.S. dollar would

a. encourage foreigners to make investments in the United States.
b. discourage foreign consumers from buying U.S. goods.
c. increase the number of dollars it would take to buy a Swiss franc.
d. encourage foreigners to buy more U.S. goods.
188. If a nation's currency depreciates, this will tend to

a. shift a nation's balance of trade toward a deficit.
b. cause a deficit in the government's budget (expenditures − revenues).
c. make foreign goods more expensive for the nation's citizens.
d. make foreign goods cheaper for the nation's citizens.
189. Which of the following will most likely result from a decline in the dollar price of a foreign currency?
a. an increase in the inflation rate
b. Foreign goods will become more expensive, and therefore, U.S. imports will decline.
c. U.S. exports will be cheaper for foreigners, and therefore, they will increase.
d. U.S. exports will become more expensive for foreigners, and therefore, they will decrease.
190. A decrease in the dollar price of foreign currency would cause

a. the nation's imports to increase and exports to decline.
b. the nation's exports to increase and imports to decline.
c. both imports and exports to decline.
d. both imports and exports to rise.
191. When the foreign exchange market is in equilibrium, which of the following will be true?
a. imports + exports = net capital inflow
b. imports − exports = net capital inflow
c. imports − budget deficit = net savings
d. imports + investment = exports + savings
192. Which of the following is most likely to increase the net inflow of foreign capital?
a. an increase in the rate of inflation
b. a decline in real GDP as the economy falls into a recession
c. a reduction in domestic investment
d. an increase in the real interest rate in the loanable funds market
193. Which of the following will be true when the foreign exchange market is in equilibrium and exports
exceed imports?
a. The nation is experiencing a trade deficit.
b. There will be a net inflow of capital.
c. There will be a net outflow of capital.
d. The exchange rate value of the domestic currency must rise.
194. If the nation's investment opportunities are highly attractive relative to those available abroad, the
nation will tend to
a. experience an outflow of capital and a trade deficit.
b. experience an outflow of capital and a trade surplus.
c. experience an inflow of capital and a trade deficit.
d. experience an inflow of capital and a trade surplus.
195. If the foreign exchange market is in equilibrium and attractive domestic investment opportunities
result in a net inflow of capital,
a. the nation will experience a trade deficit.
b. the nation will experience a trade surplus.
c. interest rates will rise in the loanable funds market.
d. the actual rate of unemployment must exceed the natural rate of unemployment.
196. When the exchange rate is determined by market forces and an economy is experiencing a net inflow
of capital, the economy will tend to
a. run a budget deficit.
b. run a trade deficit.
c. experience an increase in the supply of money.
d. experience a reduction in the supply of money.
197. If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,
a. the nation must be experiencing a net capital inflow.
b. the nation must be experiencing a net capital outflow.
c. the nation's inflation rate must increase.
d. the nation's interest rate must increase.
198. If equilibrium is present in the foreign exchange market and a nation is experiencing a trade surplus,
a. the nation must be experiencing a net capital inflow.
b. the nation must be experiencing a net capital outflow.
c. the nation's inflation rate must increase.
d. the nation's interest rate must increase.
Figure 9-1
199. In Figure 9-1, which of the following correctly labels the curves in the aggregate demand/aggregate
supply model?
a. (1) is LRAS, (2) is SRAS, and (3) is AD.
b. (1) is SRAS, (2) is LRAS, and (3) is AD.
c. (1) is AD, (2) is SRAS, and (3) is LRAS.
d. (1) is LRAS, (2) is AD, and (3) is SRAS.
KEY: Bloom's: Analysis MSC: Graphics Questions
Use the figure below to answer the following question(s).
Figure 9-2
200. The output of the economy depicted in Figure 9-2 is

a. equal to the full-employment output.
b. greater than the full-employment output.
c. less than the full-employment output.
d. not sustainable in the long run.
201. The economy depicted in Figure 9-2 is

a. operating at less than full employment.
b. operating at more than full employment.
c. in short-run equilibrium but not long-run equilibrium.
d. in long-run equilibrium.
202. The economy depicted in Figure 9-2 is experiencing

a. an abnormally high rate of unemployment.
b. an abnormally low rate of unemployment.
c. its natural rate of unemployment.
d. an output that cannot be sustained.
203. Which of the following is true for the economy depicted in Figure 9-2?
a. Output equals potential real GDP.
b. The actual rate of unemployment equals the natural rate of unemployment.
c. The output is sustainable in the long run.
d. All of the above statements are true.
204. Figure 9-2 indicates that the output of the economy, y1, is
a. greater than the economy's long-run capacity.
b. equal to the economy's long-run capacity.
c. less than the economy's long-run capacity.
d. in short-run equilibrium but not long-run equilibrium.
205. When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,
a. the actual rate of unemployment will equal the natural rate of unemployment.
b. buyers and sellers will have correctly anticipated the level of prices P1.
c. the output y1 will tend to persist into the future unless market conditions change.
a. Potential output equals y1.
b. It would be impossible for this economy to achieve an output greater than y1.
c. When output y1 is achieved, the actual rate of unemployment will exceed the natural rate
of unemployment.
d. When output y1 is achieved, the actual rate of unemployment will be less than the natural
rate of unemployment.
a. Potential output exceeds y1.
b. When output y1 is achieved, the actual rate of unemployment will exceed the natural rate
of unemployment.
c. When output y1 is achieved, the actual rate of unemployment will be less than the natural
rate of unemployment.
d. When output y1 is achieved, the actual rate of unemployment will equal the economy's
natural rate of unemployment.
208. Figure 9-2 indicates that the output of the economy, y1, is
a. greater than the economy's long-run capacity.
b. equal to the economy's long-run capacity.
c. less than the economy's long-run capacity.
d. not consistent will full employment of the economy's resources.
209. When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,
a. the actual rate of unemployment will exceed the natural rate of unemployment.
b. buyers and sellers will have correctly anticipated the level of prices P1.
c. the output y1 will not be sustainable in the future.
Figure 9-3
210. Suppose that U.S. tastes for British goods increase. Then, in Figure 9-3
a. the supply curve shifts from S1 to S2
b. the supply curve shifts from S2 to S1
c. the demand curve shifts from D2 to D1
d. the demand curve shifts from D1 to D2
e. both demand and supply shift to the right
211. Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3
a. the demand curve will shift from D1 to D2
b. the demand curve will shift from D2 to D1
c. the supply curve will shift from S1 to S2
d. the supply curve will shift from S2 to S1
e. neither the demand for nor the supply curve will shift
212. Within the aggregate demand/aggregate supply framework, the quantity on the horizontal axis in the
aggregate goods and services market represents the
a. total amount of government spending.
b. total real output (real GDP) of the economy.
c. total unemployment of the economy.
d. price level of the economy.
TOP: Equilibrium in the Goods and Services Market KEY: Bloom's: Comprehension
MSC: Coursebook
213. In the loanable funds market, the true burden of borrowers and the true yield to lenders is the
a. real (inflation adjusted) interest rate.
b. nominal (money) interest rate.
c. inflation rate.
d. inflation premium rate (in money terms).
KEY: Bloom's: Comprehension MSC: Coursebook
214. When AD is equal to SRAS at an output level equal to the LRAS curve,
a. we are at long-run macroeconomic equilibrium.
b. we are at the natural rate of unemployment.
c. both a and b are true.
d. neither a nor b is true.
215. Your grandmother gives you a $100 savings bond that will mature in fifteen years. The bank tells you
that they will buy it from you today at a price of $24. If interest rates rise in the near future, the value
of your bond
a. will fall and it will be worth less than $24.
b. will rise and it will be worth more than $24.
c. will remain unchanged at $24.
d. This is a trick question; the value of a $100 bond is always $100.
KEY: Bloom's: Application MSC: Coursebook
216. If the expected rate of inflation is zero, the

a. real interest rate must also equal zero.
b. money (nominal) interest rate must also equal zero.
c. real interest rate must equal the money interest rate.
d. economy is likely to experience high inflation in the near future.
217. Which of the following is the primary factor that coordinates the actions of borrowers and lenders in
the loanable funds market?
a. inflation rate
b. unemployment rate
c. the government
d. interest rate
218. Which of the following statements about the circular flow diagram is not correct?
a. Households receive income from the resource market; they save some of it and spend the
rest of it on domestic or foreign goods and services.
b. The loanable funds market takes net household savings and channels it in part to the
government and in part to businesses for investment.
c. Expenditures on GDP are equal to consumption plus government purchases plus
investment plus net exports (exports minus imports).
d. The net inflow of capital from foreign economies must always be positive and equal to the
amount of business investment.
219. The circular flow of income is coordinated by the

a. goods and services market, resources market, foreign exchange market, and loanable funds
market.
b. consumption market, investment market, stock market, and government market.
c. government market, household goods market, bond market, and business market.
d. financial market, corporate market, stock market, and loanable funds market.
220. As prices rise, a fixed money supply will be able to buy fewer goods and services. This effect is due to
a(n)
a. reduction in the interest rate.
b. increase in aggregate demand.
c. decline in the purchasing power of money.
d. increase in income.
MSC: Coursebook
221. The aggregate demand curve slopes downward to the right because
a. as prices decrease, the real value of the fixed quantity of money increases and thereby
stimulates consumer spending.
b. a lower price level reduces the price of domestic goods relative to foreign goods,
increasing net exports (the international substitution effect).
c. a lower price level reduces the demand for money and lowers the real interest rate,
stimulating consumption and investment spending (the interest rate effect).
MSC: Coursebook
222. Which of the following is true regarding an unanticipated increase in inflation?

a. Both borrowers and lenders will be better off.
b. Both borrowers and lenders will be worse off.
c. Borrowers will be better off and lenders will be worse off.
d. Borrowers will be worse off and lenders will be better off.
223. Suppose people anticipate that inflation will be 4 percent during the next several years. If the real rate
of interest is 5 percent, the money rate of interest must be
a. 1 percent.
b. 4 percent.
c. 5 percent.
d. 9 percent.
224. Suppose you are earning 5 percent nominal interest on your savings account. If the rate of inflation is 3
percent, the real rate of interest you are earning is
a. 2 percent.
b. 3 percent.
c. 5 percent.
d. 8 percent.
225. In 1999, the nominal interest rate on a 30-year bond was around 5.85 percent. Assuming that investors
have set these contracts expecting a real interest rate of 3 percent, what is the average rate of inflation
that investors in the market are expecting over the next thirty years?
a. 2.85 percent
b. 3 percent
c. 5.85 percent
d. 8.85 percent
226. Which of the following situations would you prefer if you planned to borrow money?
a. The nominal interest rate is 5 percent, and future prices are expected to be stable.
b. The nominal interest rate is 9 percent, and expected inflation is 7 percent.
c. The nominal interest rate is 4 percent, and expected inflation is 1 percent.
d. The nominal interest rate is 25 percent, and expected inflation is 22 percent.
228. A depreciation of a nation's currency would cause

a. the nation's imports to increase and exports to decline.
b. the nation's exports to increase and imports to decline.
c. both imports and exports to decline.
d. both imports and exports to rise.
229. If the value of a nation's imports exceeds exports, the nation has a
a. government budget deficit.
b. trade surplus.
c. trade deficit.
d. negative net capital flow.
230. The long-run aggregate supply curve is vertical, reflecting the fact that
a. changes in price have no effect on output in the long run. In the long run, the price of
goods and the price of resources move together and firms have no incentive to change
their output.
b. fluctuations in inflation cannot be anticipated in the long run, so future prices have no
effect on output.
c. changes in price affect output a lot in the long run because in the long run firms can adjust
factory sizes to meet changing demand conditions.
d. changes in price have a large effect on output because they lead to highly variable interest
rates, and business is hard to conduct under those circumstances.
MSC: Coursebook
231. Which of the following accurately indicates the relationship between the short-run and long-run
aggregate supply curves?
a. In the short run, aggregate supply is sloped upward to the right, and in the long run, it is
vertical.
b. In the short run, aggregate supply is vertical, and in the long run, it is sloped upward to the
right.
c. In the short run, aggregate supply is downward sloping, but in the long run, it is sloped
upward to the right.
d. In the short run, aggregate supply is sloped upward to the right, but in the long run, it is
downward sloping.
MSC: Coursebook
232. If the current price level in the goods and services market is higher than what was expected, output
will be
a. at the economy's long-run capacity.
b. below the economy's long-run capacity.
c. above the economy's long-run capacity.
d. equal to the expected rate of inflation minus net exports.
233. (I) If long-run equilibrium is present in the goods and services market, the current price level will
equal the price level buyers and sellers anticipated.
(II) When an economy is in long-run equilibrium, the actual rate of unemployment will equal the
natural rate of unemployment.
a. Both I and II are true.
b. Both I and II are false.
c. I is true; II is false.
d. I is false; II is true.
234. A trade surplus is when

a. imports are greater than exports of goods and services.
b. exports are greater than imports of goods and services.
c. imports are equal to exports of goods and services.
d. there is a positive net inflow of foreign capital.
KEY: Bloom's: Knowledge MSC: Coursebook
235. (I) Fiscal policy involves altering government tax and spending policies.
(II) Monetary policy encompasses those actions that alter the money supply.
a. Both I and II are true.
b. Both I and II are false.
c. I is true; II is false.
d. I is false; II is true.
KEY: Bloom's: Knowledge MSC: Coursebook
236. Suppose business decision makers become more optimistic about future economic conditions and
desire additional funds to expand their plant capacity. What is the likely effect on the loanable funds
market?
a. The demand for loanable funds will rise and the interest rate will rise.
b. The demand for loanable funds will fall and the interest rate will fall.
c. The supply for loanable funds will rise and the interest rate will fall.
d. The supply for loanable funds will fall and the interest rate will rise.
Test Bank for Macroeconomics: Public and Private Choice, 14th Edition: James D. Gwartney
237. The three reasons why the aggregate demand curve slopes downward are
a. the international substitution effect, the net exports effect and the interest rate effect.
b. the interest rate effect, the short run effect and the free rider effect
c. the net exports effect, the real balance effect and the short run effect
d. the real balance effect, the international substitution effect and the interest rate effect.
MSC: On-line Practice
Visit TestBankBell.com to get complete for all chapters

Test Bank For Macroeconomics Public and Private Choice 14th Edition James D Gwartney

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank For Macroeconomics Public and Private Choice 14th Edition James D Gwartney

Uploaded by

Copyright:

Available Formats

Test Bank for Macroeconomics: Public and Private

Choice, 14th Edition: James D. Gwartney

To download the complete and accurate content document, go to:

Macroeconomics Chapter 9 A—An Introduction to Basic Macroeconomic Markets

1. Which of the following is a correct statement?

Visit TestBankBell.com to get complete for all chapters

6. Long-run equilibrium in the goods and services market requires that

7. The resource market is important from a macroeconomic perspective because

17. The market for labor services is included in the

18. A positive level of net exports contributes directly to

19. The actions of borrowers and lenders are coordinated by

27. Which of the following is not included in aggregate demand?

32. The aggregate demand curve indicates the relationship between

33. For an economy, aggregate demand equals

35. The aggregate demand curve slopes downward indicating that

38. People will spend more if the price level

42. Other things equal, which of the following is true?

45. The international substitution effect exists because a

57. The aggregate supply curve indicates the

62. Which of the following is true?

64. In the short run, an unexpected increase in prices will

68. Once decision makers fully adjust to an increase in prices,

70. A vertical long-run aggregate supply curve indicates that

73. In the aggregate demand and aggregate supply model,

75. When equilibrium is present, if market conditions do not change,

76. In the short run, if prices were below equilibrium,

81. When an economy is in long run equilibrium,

90. An unexpected sharp reduction in inflation will most likely result in

95. The resource market involves transactions dealing with

96. Other things constant, an increase in resource prices will

97. Other things constant, a decrease in resource prices will lead to

98. Other things constant, a decrease in aggregate demand will

106. A positive nominal interest rate indicates

107. A positive real interest rate indicates

113. If there is a surplus of loanable funds

115. If there is shortage of loanable funds, then

116. If there is surplus of loanable funds, then

126. The nominal (money) rate of interest

131. The real rate of interest equals the

132. The real rate of interest is

134. The real interest rate is

135. An increase in the real interest rate will

136. An increase in the real interest rate will

139. Which of the following equations is accurate?

145. A firm's level of investment is tied to the interest rate

154. When persistent inflation is present, we would expect

155. During a period of persistent inflation,

162. The exchange rate is

174. If net exports are negative, then

175. If net exports are positive, then

180. If the U.S. demand for British pounds increases,

182. The price of one country's currency in terms of another's is called

186. An appreciation in the U.S. dollar would

188. If a nation's currency depreciates, this will tend to

190. A decrease in the dollar price of foreign currency would cause

Use the figure below to answer the following question(s).

200. The output of the economy depicted in Figure 9-2 is

201. The economy depicted in Figure 9-2 is

202. The economy depicted in Figure 9-2 is experiencing

216. If the expected rate of inflation is zero, the

219. The circular flow of income is coordinated by the

222. Which of the following is true regarding an unanticipated increase in inflation?

228. A depreciation of a nation's currency would cause