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Practice Midterm Exam1. Which of the following is not true about most economic models?A) They are composed of equations and diagrams.B) They contribute very little to economists’ understanding of the real world.C) They omit many features of the real-world economy.D) In constructing models, economists make assumptions.2. Macroeconomics is the study ofA) individual decision makersB) international trade.C) economy-wide phenomena.D) markets for large products.3. In the circular-flow diagram,A) factors of production flow from government to firms.B) goods and services flow from households to firms.C) income paid to the factors of production flows from firms to households.D) spending on goods and services flows from firms to households.4. Which of the following items is not a factor of production?A) laborB) landC) capitalD) money5. Any point on a country's production possibilities frontier represents a combination of two goods that an economyA) will never be able to produce.B) can produce using all available resources and technology.C) can produce using some portion, but not all, of its resources and technology.D) may be able to produce in the future with more resources and/or superior technology.6. Production possibilities frontiers are usually bowed outward. This is becauseA) the more resources a society uses to produce one good, the fewer resources it has available to produce another good.B) it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced.C) of the effects of technological change.D) resources are specialized, that is, some are better at producing particular goods rather than other goods.7. “Prices rise when the quantity of money rises rapidly” is an example of aA) negative economic statement.B) positive economic statement.C) normative economic statement.D) statement that contradicts one of the basic principles of economics8. Refer to Figure 2-4. The opportunity cost (in terms of toothbrushes) of obtaining 10 additional toasters by moving from point B to point A isA) 0 toothbrushesB) 10 toothbrushes.C) 20 toothbrushes.D )30 toothbrushes.9. Refer to Figure 2-4. Suppose the economy is producing at point B. Which of the following statements would best explain this situation?A) The economy lacks the resources to produce at a more desirable point.B) The economy’s available technology prevents it from producing at a more desirable point.C) There is widespread unemployment in the economy.D) Any of the above statements would be a legitimate explanation for this situation.Table 3-3BasketBirdhousesMontana412Missouri816Table 3-3 shows the number of baskets and birdhouses, Montana and Missouri could produce in 1 day. Use this information to answer the following questions.9. Refer to Table 3-3. The opportunity cost of 1 basket for Montana isA) 1/3 birdhouseB) 1 birdhouse.C) 3 birdhouses.D) 4 birdhouses.10. Refer to Table 3-3. Montana has an absolute advantage inA) birdhouses and Missouri has an absolute advantage in baskets.B) baskets and Missouri has an absolute advantage in birdhouses.C) neither good and Missouri has an absolute advantage in both goods.D) both goods and Missouri has an absolute advantage in neither good.12. Refer to Table 3-3. If Montana and Missouri trade based on the principle of comparative advantage, Montana will exportA) baskets and Missouri will export birdhouses.B) birdhouses and Missouri will export baskets.C) neither good and Missouri will export both goods.D) both goods and Missouri will export neither good.13. If a good is normal, then an increase in income will result inA) a shift to the right of the demand curve for the good.B) a shift to the left of the demand curve for the good.C) a movement down and to the right along the demand curve for the good.D) a movement up and to the left along the demand curve for the good.14. Two goods are substitutes if a decrease in the price of one goodA) decreases the demand for the other good.B) decreases the quantity demanded of the other good.C) increases the demand for the other good.D) increases the quantity demanded of the other good.15. What will happen in the rice market if buyers are expecting higher rice prices in the near future?A) The demand for rice will increase immediatelyB) The demand for rice will decrease immediatelyC) The demand for rice will be unaffected immediatelyD) The supply of rice will increase immediately 16. Recent forest fires in the western states are expected to cause the price of lumber to rise in the next 6 months. As a result we can expect the supply of lumber toA) fall in 6 months, but not now.B) increase in 6 months when the price goes up.C) fall now.D) increase now to meet as much demand as possible.17. GDP is defined as A) the market value of all goods and services produced within a country in a given period of time.B) the market value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.C) the market value of all final goods and services produced within a country in a given period of time.D) the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.18. Which of the following is not included in GDP?A) carrots grown in your garden and eaten by your familyB) carrots purchased at a farmer’s market and eaten by your familyC) carrots purchased at a grocery store and eaten by your familyD) Both A and B19. Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc. is calledA) an inventory good.B) a transitory good.C) a final good.D) an intermediate good.20. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute A) $100 to GDP.B) $150 to GDP.C) $250 to GDP.D) $400 to GDP.21. Which of the following examples of production of goods and services would be included in U.S. GDP?A) Samantha, a Canadian citizen, grows sweet corn in Minnesota and sells it to a grocery store in Canada.B) Ian, an American citizen, grows peaches for his family in the back yard of their Atlanta home.C) Leo, an American citizen, cooks up cracks cocaine in his Seattle home and sells it to his friends and neighbors.D) None of the above examples of production would be included in U.S. GDP.22. Which of the following items is counted as part of government purchases?A) The federal government pays $2,000 in Social Security benefits to a retired person.B) The city of Des Moines, Iowa pays $10,000 to a tree-trimming firm to trim trees along city boulevards.C) The state of Iowa pays $1,000 to help a low-income family pay its medical bills.D) All of the above are correct.Table 5-1The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2006.YearPriceof WafflesQuantity of WafflesPriceof PancakesQuantity of Pancakes2005$2100$11002006$2120$21502007$3150$32002008$4180$322023. Refer to Table 5-1. In 2005, Batterland’s nominal GDP wasA) $300.B) $390.C) $400.D) None of the above24. Refer to Table 5-1. In 2005, Batterland’s real GDP wasA) $300.B) $390.C) $400.D) None of the above25. Refer to Table 5-1. In 2005, Batterland’s GDP deflator wasA) 75.B) 100.C) 133.3.D) None of the above26. Refer to Table 5-1. In 2006, Batterland’s GDP deflator wasA) 1.B) 75.C) 138.5.D) None of the above27. Refer to Table 5-1. Batterland’s inflation rate from 2005 to 2006 wasA) -25%.B) 25%.C) 33.3%.D) None of the above28. GDP does not reflectA) the value of leisure.B) the value of goods and services produced at home.C) the quality of the environment.D) All of the above are correct.29. The consumer price index (CPI) was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was aboutA) 6.25 percent between the first and second years, and 8.6 percent between the second and third years.B) 6.7 percent between the first and second years, and 9.4 percent between the second and third years.C) 10 percent between the first and second years, and 15 percent between the second and third years.D) 60 percent between the first and second years, and 75 percent between the second and third years.Table 6-1The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans. YearPrice of PeachesPrice of Pecans2005$11 per bushel$6 per bushel2006$9 per bushel$10 per bushel30. Refer to Table 6-1. If 2005 is the base year, then the CPI for 2005 wasA) 83.3.B) 100.C) 120.D) 200.31. Refer to Table 6-1. If 2005 is the base year, then the CPI for 2006 wasA) 83.3.B) 100.C) 120.D) 240.32. Refer to Table 6-1. If 2005 is the base year, then the inflation rate in 2006 wasA) 16.7 percent.B) 20 percent.C) 40 percentD) 44.1 percent.33. The CPI differs from the GDP deflator in thatA) the CPI is a price index, while the GDP deflator is an inflation index.B) substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.C) increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.D) increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.34. Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000. By 2003, she had been promoted to full professor, with a salary of $50,000. If the price index was 50 in 1974 and 180 in 2003, then what is Iggie's 1974 salary in 2003 dollars?A) $2,777.78B) $18,000C)) $26,000D) None of the above35. The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000 and repaid the loan in 2001. If the nominal interest rate on the loan was 12 percent, then the real interest rate wasA) 2 percent.B) 10 percent.C)12 percent.D) None of the above36. If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at theA) level of real GDP.B) growth rate of nominal GDP.C) growth rate of real GDP.D) growth rate of real GDP per person.37. Which of the following is correct?A) Countries with the highest growth rates over the last 100 years are the ones that had the highest level of real GDP 100 years ago.B) Most countries have had little fluctuation around their average growth rates during the past 100 years.C) The ranking of countries by income changes over time.D) Over the last 100 years, Japan had the highest real GDP growth rate, and now has the highest real GDP per person.38. The one variable that is the most significant explanation of the large variations in living standards around the world isA) worker productivity.B) population.C) money supplyD) prices.39. Jason accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Jason’sA) standard of learning.B) technological knowledge.C) physical capital.D) human capital.40. Which of the following would not be considered physical capital?A) a new factory buildingB) a computer used to help Mercury Delivery Service keep track of its ordersC) on-the-job trainingD) all of the above are examples of physical capital41. In countries that experience political instability, standards of living tend to be low because ofA) violations of diminishing returns.B) excessive levels of caloric intake.C) lack of respect for property rights.D) attempts by government officials to thwart the catch-up effect.42. The logic behind the catch-up effect is thatA) workers in countries with low incomes will work more hours than workers in countries with high incomes.B) the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.C) new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.D) None of the above is correct.Figure 7-1 On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L).43. Refer to Figure 7-1. The curve becomes flatter as the amount of capital per worker increases because of A) increasing returns to capital.B) increasing returns to labor.C) diminishing returns to capital.D) diminishing returns to labor.44. Real GDP per person is $30,000 in Canada, $20,000 in Spain, and $11,000 in Mexico. Saving per person is $1,000 in all three countries. Other things equal, we would expect thatA) all three countries will grow at the same rate.B) Canada will grow the fastest.C) Spain will grow the fastest.D) Mexico will grow the fastest.45. Which of the following statements is consistent with the catch-up effect?A) The United States had a higher growth rate before 1900 than after.B) After World War II the United States had lower growth rates than war-ravaged European countries.C) Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries.D) All of the above are correct.46. When Mali experiences investment from abroad, it experiences, as a result,A) an increase in productivity.B) a decrease in capital per workerC) lower wages for Mexican workers.D) None of the above is correct.47. When a large, well-known corporation wishes to borrow directly from the public, it can A) sell bonds.B) sell shares of stock. C) go to a bank for a loan.D) All of the above are correct.48. Two of the economy’s most important financial intermediaries areA) suppliers of funds and demanders of funds.B) banks and the bond market.C) the stock market and the bond market.D) banks and mutual funds.49. Compared to short-term bonds, other things the same, long-term bonds generally haveA) more risk and so they pay higher interest rates.B) less risk and so they pay lower interest rates.C) less risk and so they pay higher interest rates.D) about the same risk and so they pay about the same interest rate.50. A high demand for a company’s stock is an indication thatA) the company is in need of funds.B) the company has recently sold a large quantity of bonds.C) people are optimistic about the company’s future.D) people are pessimistic about the company’s future.51. A mutual fundA) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.52. You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?A) Private and public saving are both positive.B) Both private saving and public saving are negative.C) Private saving is negative; public saving is positive.D) None of the above statements are true53. A closed economy does notA) trade with other economies.B) have free markets.C) allow financial intermediation.D) All of the above are correct.54. Which of the following expressions must be equal to national saving for a closed economy?A) Y - I - G – NXB) Y - C - GC) Y - I – CD) G + C - Y55. Suppose a closed economy had public saving of $3 trillion and private saving of $2 trillion. What are national saving and investment for this country?A) $5 trillion, $5 trillionB) $5 trillion, $2 trillionC) $1 trillion, $5 trillionD) $1 trillion, $2 trillion56. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?A) 1,500, 1,000, and 500, respectivelyB) 1,000, 500, and 1,500, respectivelyC) 500, 1,500, and 1,000, respectivelyD) None of the above is correct.57. In the small closed economy of San Lucretia, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and services were 80 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lucretia?A) 270 billion denars, 80 billion denarsB) 260 billion denars, 60 billion denarsC) 250 billion denars, 70 billion denarsD) None of the above is correct.58. 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.59. In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?A) The demand for loanable funds shifted right.B) The demand for loanable funds shifted left.C) The supply of loanable funds shifted right.D) The supply of loanable funds shifted left.60. 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.61. Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibriumA) interest rates and the equilibrium quantity of loanable funds rise.B) interest rates rise and the equilibrium quantity of loanable funds fall.C) interest rates fall and the equilibrium quantity of loanable funds rise.D) interest rates and the equilibrium quantity of loanable funds fall.62. If Canada increases its budget deficit, it will reduceA) private saving and so shift the supply of loanable funds left.B) investment and so shift the demand for loanable funds left.C) public saving and so shift the supply of loanable funds left.D) None of the above is correct.63. Zeeman is a college student who is not working or looking for a job. The Bureau of Labor Statistics counts Zeeman asA) unemployed and in the labor force.B) unemployed, but not in the labor force.C) in the labor force, but not unemployed.D) neither in the labor force nor unemployed.64. Suppose some country had an adult population of about 25 million, a labor-force participation rate of 60 percent, and an unemployment rate of 6 percent. How many people were employed?A) 0.9 millionB) 14.1 millionC) 15 millionD) 23.5 million65. Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate isA) always zero. B) sometimes zero.C) rarely zero.D) never zero.66. Discouraged workersA) are counted as out of the labor force but should be counted as unemployed.B) are counted as unemployed but should be counted as out of the labor force.C) are correctly counted as out of the labor force.D) are correctly counted as unemployed.67. People who are unemployed because of job search are best classified asA) cyclically unemployed.B) structurally unemployed.C) frictionally unemployed.D) discouraged workers.68. If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there isA) cyclical unemployment amounting to 0.5 percent of the labor force.B) frictional unemployment amounting to 0.5 percent of the labor force.C) structural unemployment amounting to 0.5 percent of the labor force.D) search unemployment amounting to 0.5 percent of the labor force.69. More generous unemployment insurance wouldA) raise structural unemployment.B) raise frictional unemployment.C) lower structural unemployment.D) lower frictional unemployment.70. Which of the following is not correct?A) It is only among the least skilled and least experienced members of the labor force that minimum-wage laws cause unemployment.B) The equilibrium wages of the least skilled and least experienced members of the labor force tend to be low, and, therefore, are more likely to fall below the legal minimum wage.C) If the wage is kept below the equilibrium level for any reason, the result is unemployment.D) Minimum-wage laws, unions, and efficiency wages are all reasons wages may be kept above the equilibrium level.71. Which of the following is not a reason that paying efficiency wages may increase a firm's profit?A) Efficiency wages increase worker health and therefore increase worker productivity.B) Efficiency wages decrease worker turnover and therefore decrease hiring and training costs.C) Efficiency wages decrease worker shirking and therefore increase worker productivity.D) Efficiency wages decrease a country's natural rate of unemployment and therefore increase its standard of living.72, In which of the following sets of assets are the assets correctly ranked from most liquid to least liquid?A) money, bonds, cars, housesB) money, cars, houses, bondsC) bonds, money, cars, housesD) bonds, cars, money, houses73. Which of the following is not included in M1?A) a $5 bill in your walletB) $100 in your checking accountC) $500 in your savings accountD) All of the above are included in M1.74. Which of the following is included in both M1 and M2?A) savings depositsB) demand depositsC) small time depositsD) money market mutual funds75. At any given time, the voting members of the Federal Open Market Committee includeA) five of the 12 presidents of the regional Federal Reserve banks.B) the president of the Federal Reserve Bank of New York.C) the seven members of the Board of Governors.D) All of the above are correct.76. The Federal Reserve does all except which of the following?A) It controls the supply of money.B) It acts as a lender of last resort to banks.C) It makes loans to large business firms.D) It tries to ensure the health of the banking system.77. On a T-account for a bank,A) reserves and deposits are both assets.B) reserves are assets and deposits are liabilities.C) deposits are assets and reserves are liabilities.D) reserves and deposits are both liabilities.78. Suppose that banks desire to hold no excess reserves. If the reserve requirement is 5 percent and a bank receives a new deposit of $400, itA) must increase required reserves by $20.B) will initially see reserves increase by $400.C) will be able to use this deposit to make new loans amounting to $380.D) All of the above are correct.Table 11-1 The First Bank of Johnson CityAssetsLiabilitiesReserves $2,000Deposits $10,000Loans 8,00079. Refer to Table 11-1. The reserve ratio for this bank isA) 0 percent.B) 20 percent.C) 80 percent.D) None of the above80. Refer to Table 11-1. If $1,000 is deposited into the First Bank of Johnson City, and the bank takes no other actions, itsA) excess reserves will increase by $200.B) liabilities will decrease by $1,000.C) assets will increase by $1,000.D) total reserves will increase by $800.81. If the reserve ratio is 12.5 percent, then $5,600 of money can be generated byA) A deposit of $64.B) A deposit of$448.C) A deposit of $700.D) A deposit of$800.82. The discount rate is the interest rate thatA) banks charge one another for loans.B) banks charge the Fed for loans.C) the Fed charges banks for loans.D) the Fed charges Congress for loans.Table 11-2. Bank of SpringfieldAssetsLiabilitiesReserves $19,200Deposits $240,000Loans 228,00083. Refer to Table 11-2. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?A) 5.00%B) 8.00%C) 8.42%D) 9.50%84. Refer to Table 11-2. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?A) 5.0B) 7.5C) 10.00D) 12.585. Refer to Table 11-2. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?A) $1,200B) $2,400C) $2,880D) $4,80086. The money supply increases when the Fed A) buys bonds. The increase will be larger, the smaller is the reserve ratio.B) buys bonds. The increase will be larger, the larger is the reserve ratio.C) sells bonds. The increase will be larger, the smaller is the reserve ratio.D) sells bonds. The increase will be larger, the larger is the reserve ratio.87. To increase the money supply, the Fed couldA) sell government bonds.B) increase the discount rate.C) decrease the reserve requirement.D) None of the above is correct.88. Which of the following lists two things that both increase the money supply?A) lower the discount rate, raise the reserve requirementB) lower the discount rate, lower the reserve requirementC) raise the discount rate, raise the reserve requirementD) raise the discount rate, lower the reserve requirement89. During recessions, banks typically choose to hold more excess reserves relative to their deposits. This actionA) increases the money multiplier and increases the money supply.B) decreases the money multiplier and decreases the money supply.C) does not change the money multiplier, but increases the money supply.D) does not change the money multiplier, but decreases the money supply.90. Which of the following is correct?A) Short run fluctuations in economic activity happen only in developing countries.B) During economic contractions most firms experience rising retail sales.C) Recessions come at regular intervals and are easy to predict.D) When real GDP falls, the rate of unemployment rises.91. During a recession the economy experiencesA) rising unemployment and income.B) rising employment and falling income.C) rising income and falling employment.D) falling employment and income.92. During recessions which type of spending falls?A) consumption and investmentB) investment but not consumptionC) consumption but not investmentD) neither consumption nor investment93. The aggregate-demand curve shows theA) quantity of labor and other inputs that firms want to buy at each price level.B) quantity of labor and other inputs that firms want to buy at each inflation rate.C) quantity of domestically produced goods and services that households want to buy at each price level.D) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.94. Which of the following is not included in aggregate demand?A) purchases of stock and bondsB) purchases of services such as visits to the doctorC) purchases of capital goods such as equipment in a factoryD) All of the above are included in aggregate demand95. Changes in the price level affect which components of aggregate demand?A) only consumption and investmentB) only consumption and net exportsC) only consumption, investment, and net exports D) consumption, investment, government spending and net exports96. Other things the same, a decrease in the price level makes consumers feel A) less wealthy, so the quantity of goods and services demanded falls.B) less wealthy, so the quantity of goods and services demanded rises.C) more wealthy, so the quantity of goods and services demanded rises.D) more wealthy, so the quantity of goods and services demanded falls.97. In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,A) the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports.B) the real value of money decreases; in turn, interest rates increase, which decreases net exports.C) households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods.D) households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.98. Other things the same, if the price level rises, peopleA) increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.B) increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.C) decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.D) decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.99. When the dollar depreciates, U.S.A) exports and imports increase.B) exports increase, while imports decrease.C) exports decrease, while imports increase. D) exports and imports decrease.100. Other things the same, an increase in the price level causes the interest rate toA) increase, the dollar to depreciate, and net exports to increase.B) increase, the dollar to appreciate, and net exports to decrease.C) decrease, the dollar to depreciate, and net exports to increase.D) decrease, the dollar to appreciate, and net exports to decrease.101. Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to desireA) decreased consumption, shown as a movement to the left along a given aggregate-demand curve.B) increase consumption, shown as a movement to the right along a given aggregate-demand curve.C) decreased consumption, shifting the aggregate-demand curve to the left.D) increased consumption, shifting the aggregate-demand curve to the right.102. Other things the same, when the government spends more, the initial effect is thatA) aggregate demand shifts right.B) aggregate demand shifts left.C) aggregate supply shifts right.D) aggregate supply shifts left.103. When the money supply decreasesA) interest rates fall and so aggregate demand shifts left.B) interest rates fall and so aggregate supply shifts left.C) interest rates rise and so aggregate supply shifts left.D) interest rates rise and so aggregate demand shifts left.104. Which of the following shifts aggregate demand to the right?A) a decrease in the money supplyB) increases in the profitability of capital due perhaps to technological progress.C) the repeal of an investment tax creditD) a decrease in the price level105. Which of the following shifts aggregate demand to the left?A) an increase in the price levelB) an open market sale by the Federal ReserveC) Congress passes a new investment tax creditD) None of the above106. If speculators lost confidence in foreign economies and so wanted to buy more U.S. bondsA) the dollar would appreciate which would cause aggregate demand to shift right.B) the dollar would appreciate which would cause aggregate demand to shift left.C) the dollar would depreciate which would cause aggregate demand to shift right.D) the dollar would depreciate which would cause aggregate demand to shift left.Use the following scenario to answer Question 107U.S. Financial CrisisSuppose that foreigners had reduced confidence in U.S. financial institutions (maybe because they invested in worthless mortgages) and believed that privately issued U.S. bonds were more likely to be defaulted on.107. What would happen to U.S. aggregate demand?A) it would shift right because U.S. net exports would rise.B) it would shift right because U.S. net exports would fall.C) it would shift left because U.S. net exports would rise.D) it would shift left because U.S. net exports would fall.108. Which of the following is not a determinant of the long-run level of real GDP?A) the price levelB) the supply of laborC) available natural resourcesD) available technology109. The long-run aggregate supply curve shifts right ifA) immigration from abroad increases.B) the capital stock increases.C) technology advances.D) All of the above are correct.110. The long-run aggregate supply curve would shift right if the government were toA) increase the minimum-wage.B) make unemployment benefits more generous.C) raise taxes on investment spending.D) None of the above is correct.111. The aggregate supply curve is upward sloping in A) the short and long run.B) neither the short nor long run.C) the long run, but not the short run.D) the short run, but not the long run.112. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,A) production is more profitable and employment rises.B) production is more profitable and employment falls.C) production is less profitable and employment rises.D) production is less profitable and employment falls.113. Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, thenA) employment and production rise.B) employment rises and production falls.C) employment falls and production rises.D) employment and production fall.114. The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce hasA) decreased, so they increase production.B) decreased, so they decrease production.C) increased, so they increase production.D) increased, so they decrease production.115. The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will haveA) higher than desired prices which leads to an increase in the aggregate quantity of goods and services supplied.B) higher than desired prices which leads to a decrease in the aggregate quantity of goods and service supplied.C) lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied.D) lower than desired prices which leads to a decrease in the aggregate quantity of goods and services supplied116. The price level rises in the short run ifA) aggregate demand or aggregate supply shifts right.B) aggregate demand shifts right or aggregate supply shifts left.C) aggregate demand shifts left or aggregate supply shifts right.D) aggregate demand or aggregate supply shifts right.Scenario #1Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.117. Refer to Scenario #1. Which curve shifts and in which direction?A) aggregate demand shifts rightB) aggregate demand shifts leftC) aggregate supply shifts rightD) aggregate supply shifts left.118. Refer to Scenario #1. In the short run what happens to the price level and real GDP?A) both the price level and real GDP rise.B) both the price level and real GDP fall.C) the price level rises and real GDP falls.D) the price level falls and real GDP rises.119. Refer to Scenario #1. In the long run, the stock market boom shiftsA) long-run aggregate supply right.B) long-run aggregate supply left.C) short-run aggregate supply right.D) short-run aggregate supply left.120. Refer to Scenario #1. How is the new long-run equilibrium different from the original one?A) the price level and real GDP are higherB) the price level and real GDP are lower.C) the price level is higher and real GDP is the same.D) the price level is the same and real GDP is higher.121. Stagflation exists when pricesA) and output rise.B) rise and output falls.C) fall and output rises.D) and output fall.122. In the short-run an increase in the costs of production makesA) output and prices rise.B) output rise and prices fall.C) output fall and prices rise.D) output and prices fall.Figure 15-1123. Refer to Figure 15-1. The shift of the short-run aggregate-supply curve from AS1 to AS2 A) could be caused by an outbreak of war in the Middle East.B) could be caused by a decrease in the expected price level.C) causes the economy to experience an increase in the unemployment rate.D) causes the economy to experience stagflation.124. Refer to Figure 15-1. Point B representsA) short-run equilibrium and a long-run equilibrium.B) a short-run equilibrium but not a long-run equilibrium.C) a long-run equilibrium but not a short-run equilibrium.D) neither a short-run equilibrium nor a long-run equilibrium.125. Refer to Figure 15-1. Starting from point B and assuming that aggregate demand is held constant, in the long run the economy is likely to experienceA) a falling price level and a falling level of output.B) a falling price level and a rising level of output.C) a rising price level and a falling level of output.D) a rising price level and a rising level of output.126. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shiftA) aggregate supply to the right.B) aggregate supply to the left.C) aggregate demand to the right.D) aggregate demand to the left.127. People choose to hold a smaller quantity of money ifA) the interest rate rises, which causes the opportunity cost of holding money to rise. B) the interest rate falls, which causes the opportunity cost of holding money to rise. C) the interest rate rises, which causes the opportunity cost of holding money to fall. D) the interest rate falls, which causes the opportunity cost of holding money to fall.128. When the Fed sells government bonds, the reserves of the banking systemA) increase, so the money supply increases.B) increase, so the money supply decreases.C) decrease, so the money supply increases.D) decrease, so the money supply decreases.129. The interest rate falls ifA) either money demand or money supply shifts right.B) money demand shifts right or money supply shifts left.C) either money demand or money supply shifts left.D) money demand shifts left or money supply shifts right.130. If the Federal Reserve decided to lower interest rates, it couldA) buy bonds to lower the money supply.B) buy bonds to raise the money supply.C) sell bonds to lower the money supply.D) sell bonds to raise the money supply.Figure 16-1131. Refer to Figure 16-1. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?A) 1, 2, 3, 4B) 1, 4, 3, 2C) 3, 4, 2, 1D) 3, 2, 1, 4132. Fiscal policy refers to the idea that aggregate demand is affected by changes inA) the money supply.B) government spending and taxes.C) trade policy.D) All of the above are correct.133. The marginal propensity to consume (MPC) is defined as the fraction ofA) extra income that a household consumes rather than saves.B) extra income that a household either consumes or saves.C) total income that a household consumes rather than saves.D) total income that a household either consumes or saves.134. If the MPC = 3/5, then the government purchases multiplier isA) 5/3.B) 5/2.C) 5.D) 15.135. In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending isA) $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.B) $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand.C) $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.D) $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand.136. The logic of the multiplier effect appliesA) only to changes in government spending.B) to any change in spending on any component of GDP.C) only to changes in the money supply.D) only when the crowding-out effect is sufficiently strong.137. The term crowding-out effect refers toA) the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.B) the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.C) the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.D) the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.138. An increase in government spendingA) increases the interest rate and so investment spending increases.B) increases the interest rate and so investment spending decreases.C) decreases the interest rate and so increases investment spending increases.D) decreases the interest rate and so investment spending decreases.139. If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession byA) buying bonds to increase the money supplyB) buying bonds to decrease the money supply.C) selling bonds to increase the money supply.D) selling bonds to decrease the money supply.140. Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?A) a decrease in the money supplyB) a reduction in tax ratesC) a decrease in government purchasesD) None of the above is correct. ................
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