Q&A Hero

Q: Gross public debt is the amount of funds that A) U.S. residents owe to foreign residents. B) states owe to the federal government.C) the federal government owes to taxpayers.D) the federal government owes to all holders of U.S. securities.

Q: The crowding-out effect isA) due to the upward slope of the SRAS when the economy is operating to the right of the LRAS curve.B) due to the government being more powerful in the markets when there is an increase in government spending.C) a situation in which expansionary fiscal policy leads to a decrease in planned real investment or planned real consumption in the private sector.D) only relevant when an inflationary gap is present.

Q: If businesses expect the economic activity to expand,A) the planned investment function relating investment to the interest rate will shift to the left.B) the planned investment function relating investment to the interest rate will remain unchanged, but will move downward along the curve.C) the planned investment function relating investment to the interest rate will steepen.D) the planned investment function relating investment to the interest rate will shift to the right.

Q: Expenditures by firms on new machines and buildings that are expected to yield a future stream of income is known asA) consumer durable. B) consumption goods. C) fixed investment. D) inventory investment.

Q: In the classical view, if desired saving exceeds desired investment,A) government spending must fall. B) government spending must rise.C) the interest rate would decline. D) the interest rate would increase.

Q: When the price level falls,A) imports increase, and exports decrease, which causes a movement up along the aggregate demand curve.B) there is no impact on imports or exports, so there is no associated movement along the aggregate demand curve.C) imports decrease and exports increase, which cause a movement down along the aggregate demand curve.D) imports decrease and exports increase, which cause a movement up along the aggregate demand curve.

Q: A government protection for an inventor that provides the inventor with the right to make use of her invention in any way she desires isA) an innovation. B) a copyright. C) a patent. D) a trademark.

Q: If Gross Domestic Product (GDP) and other national income accounts are expressed in nominal values, then they areA) measured in real values.B) measured in market prices at which goods actually sold.C) measured in constant prices instead of actual market prices.D) readily comparable to Gross Domestic Product (GDP) figures for other years.

Q: GDPA) is a stock measure since it represents the total market value.B) is a flow measure since it represents the value of a flow of production over a yearʹs period.C) is neither a stock or flow measure since it is measured in dollars.D) could be either a stock or flow measure depending upon whether it is measured in dollars or units of production.

Q: Refer to the above table. You are given information on Janeʹs consumption for 2005 and 2010.Using 2005 as the base year compute the price index for 2010. The index equalsA) 0.75. B) 73.007. C) 87.50. D) 136.842.

Q: Which of the following is true about the labor force?A) It includes those over 16 who are employed.B) It includes those over 16 who are unemployed. C) Both A and B are correct.D) None of the above is correct.

Q: Assume that a country has had a relatively steady growth of aggregate real GDP. A higher population growth tends toA) reduce the growth of per capita real GDP.B) increase the growth of per capita real GDP. C) increase the level of economic freedom.D) increase the level of dead capital.

Q: Empirical evidence suggests that, when unemployment benefits run out, the probability that an unemployed person will find a jobA) remains constant. B) goes down by 20 percent. C) about doubles. D) about triples.

Q: An appreciation of the U.S. dollar is most likely a result that A) the Fed has pursued an expansionary monetary policy. B) U.S. interest rates have increased.C) U.S. bond prices have increased.D) more dollars are required to obtain foreign currencies.

Q: If the reserve ratio is raised, the money multiplierA) is lowered. B) is increased. C) stays the same. D) is doubled.

Q: Refer to the above table. The value of M1 isA) $860 billion. B) $910 billion. C) $1,360 billion. D) $2,560 billion.

Q: To evaluate relative changes in the net public debt, we must A) look at the absolute amount owed by the government. B) compare it to the nationʹs real GDP.C) look at the annual percentage change in the public debt. D) compare it to the debts of all developed countries.

Q: The tendency for expansionary fiscal policy to cause a reduction in planned real investment spending by the private sector is calledA) the indirect effect. B) the interest rate effect. C) the crowding-out effect. D) the Laffer effect.

Q: All of the following would cause the investment function relating investment to the interest rate to shift EXCEPTA) a change in the real interest rate.B) a change in producer expectations of future profit. C) a change in planned capital goods expenditure.D) a change in productive technology.

Q: Spending by businesses on things such as machines and buildings which can be used to produce goods and services in the future isA) investment. B) consumption. C) consumption goods. D) savings.

Q: Which statement best characterizes the classical economistsʹ view of saving and investment? A) Saving equals investment B) Saving exceeds investment C) Saving is less than investment D) Saving and investment are not related to one another

Q: When the price level declines,A) the interest rate rises, and consumers borrow fewer funds, which causes a movement up the aggregate demand curve.B) the interest rate falls, and consumers borrow more funds, which causes a movement down along the aggregate demand curve.C) the interest rate is not affected, so there is no movement along the aggregate demand curve.D) interest rates fall, and consumers borrow more funds, which causes the aggregate demand curve to shift to the left.

Q: New growth theory emphasizes all of the following EXCEPTA) technology. B) import restrictions. C) research and development. D) innovation.

Q: Suppose 2009 is the base year. From 2009 to 2010, the price index increases from 100 to 102.5. If nominal Gross Domestic Product (GDP) is $2,800 in 2010, then the real Gross Domestic Product (GDP) in 2010 isA) $2,700. B) $2,800. C) $2,732. D) $2,870.

Q: Suppose that in 2010, the total value of all final services produced in a nation was $300 billion; the total value of all final goods produced in that nation was $400 billion; and the total value of all final goods and services produced by that nationʹs firms in other countries was $200 billion. Gross domestic product wasA) $600 billion. B) $500 billion. C) $900 billion. D) $700 billion.

Q: Refer to the above table. You are given information on Janeʹs consumption for 2005 and 2010.Using 2005 as the base year, compute the price index for 2010. The index equalsA) 1.5. B) 70.588. C) 141.667. D) 107.143.

Q: Which of the following is true of unemployment?A) It is defined as the number of people actively looking for work who do not have jobs.B) The result is that the economy operates inside its production possibilities curve. C) There are psychological consequences associated with unemployment.D) All of the above.

Q: Country X has experienced GDP growth of 6 percent and a population growth of 4 percent.What is this countryʹs growth of per capita real GDP?A) 2 percent B) 10 percent C) 6 percent D) -2 percent

Q: When the economy is in long-run equilibrium, there will beA) no unemployment. B) frictional and structural unemployment.C) cyclical unemployment only. D) cyclical and seasonal unemployment.

Q: An expansionary monetary policy results in lower interest rates, which in turnA) increases foreign demand for U.S. financial instruments, raising the international price of the dollar and reducing net exports.B) increases the foreign demand for U.S. financial instruments, lowering the international price of the dollar and decreasing net exports.C) reduces the international price of the dollar and increases net exports.D) reduces the foreign demand for U.S. financial instruments and reduce net exports.

Q: The reason that the commercial banking system can generate a multiple expansion or contraction of the money supply is thatA) banks are required to hold only a fraction of their deposit liabilities as reserves. B) most banks maintain a relatively large stock of reserves.C) banks hold reserves equal to their net worth.D) banks generally are required to hold surplus funds on deposit with other banks.

Q: Currency consists ofA) only coins minted by the U.S. Treasury. B) only Federal Reserve notes.C) coins minted by the U.S. Treasury and Federal Reserve notes. D) coins, Federal Reserve Notes and travelerʹs checks.

Q: If the net public debt declined last year, then which of the following most likely occurred during that year? A) The governmentʹs budget was balanced. B) The government experienced a budget surplus. C) The government experienced a budget deficit. D) The share of foreign holdings of the governmentʹs debt increased.

Q: If the government increases spending while holding taxes constant, we expectA) an increase in investment spending by businesses too, as they anticipate future economic growth.B) a decrease in real saving as consumers follow suit and also increase borrowing. C) planned real investment spending by businesses to increase.D) interest rates to rise.

Q: A decrease in interest rates willA) shift the investment function relating planned investment to the interest rate to the right.B) shift the investment function relating planned investment to the interest rate to the left.C) be a movement along the investment function relating planned investment to the interest rate.D) have no impact on the investment function relating planned investment to the interest rate.

Q: Investment isA) the purchasing of stocks and mutual funds.B) goods bought by households.C) spending by businesses on things which can be used to produce goods and services in the future.D) the production of goods for immediate satisfaction.

Q: Classical economists suggest that unemployment is a short -lived phenomenon becauseA) wages adjust quickly to equilibrate quantity of labor demanded with quantity of labor supplied.B) wages remain unchanged when the quantity of labor demanded exceeds the quantity of labor supplied.C) wages remain unchanged when the quantity of labor supplied exceeds the quantity of labor demanded.D) wages tend to rise slowly when the quantity of labor demanded equals the quantity of labor supplied.

Q: An increase in U.S. prices relative to Japanese prices willA) increase total planned spending on U.S. goods and services.B) increase U.S. imports and decrease U.S. exports. C) decrease U.S. imports and increase U.S. exports. D) decrease both U.S. exports and imports.

Q: According to the new growth theory,A) technology should be considered as a factor of production. B) technology plays a minor role in economic development.C) technology provides few rewards to the society.D) technology is a natural by-product of invention.

Q: Constant dollar Gross Domestic Product (GDP)A) is the same as nominal Gross Domestic Product (GDP).B) is nominal Gross Domestic Product (GDP) divided by the price index.C) is equal to real GDP multiplied by the overall price level. D) all of the above.

Q: The total value of all final goods and services produced by factors of production located within a nationʹs borders isA) GDP. B) NI.C) PI. D) net investment.

Q: Last year you purchased 20 shirts at $15 apiece, 30 CDs at $12 each, and 5 sweaters at $25 apiece. This year you buy 20 shirts at $20 apiece, 30 CDs at $12 apiece, and 5 sweaters at $20 a apiece. If last yearʹs index was 100, this yearʹs index isA) 91.3. B) 102.0. C) 109.5. D) 9.5.

Q: In nondemocratic countries that have experienced consistent economic growth and improvements in their standards of living,A) there is no tendency to become more democratic over time because the current political situation is economically successful.B) political freedom is apt to decrease over time as governments become more controlling.C) the rise of special-interest groups usually promotes competition and growth. D) there is a tendency to become democratic over time.

Q: The natural rate of unemployment consists ofA) no workers looking for employment. B) only seasonal unemployment.C) only structural unemployment.D) structural and frictional unemployment.

Q: Using a graph above, show the short -run and long-run effects of an expansionary monetary policy.

Q: A decrease in the reserve ratio willA) cause the money supply to decrease. B) cause the money supply to increase.C) not affect the money supply. D) decrease the money multiplier.

Q: Which of the following is NOT included in M1?A) Currency. B) Transaction deposits. C) Saving deposits. D) Travelerʹs checks.

Q: One mechanism through which increasing public debt may impact the economy is that the resultingA) increased competition for funds increases interest rates and causes a reduction in investment.B) increased competition for funds decreases interest rates and causes an increase in investment.C) decreased competition for funds decreases interest rates and causes a reduction in investment.D) decreased competition for funds decreases interest rates and causes an increase in investment.

Q: At tax rates higher than the tax rate that maximizes tax revenues along a Laffer curve, A) an increase in tax rates increases tax revenues.B) a reduction in tax rates reduces tax revenues. C) a reduction in tax rates increases tax revenues.D) any variation in tax rates has no effect on tax revenues.

Q: Which would increase real planned investment demand?A) a decrease in new technologies availableB) a decline in profit expectationsC) a decrease in business taxesD) an increase in nominal interest rates

Q: Which of the following statements is true? A) investment = disposable income + consumption B) saving = personal income - consumption C) saving = disposable income - consumption D) saving = personal income + consumption

Q: Q: How many economists does it take to screw in a light bulb? A: None. If the light bulb really needed changing, market forces would have already caused it to happen. This joke represents the view of A) classical economists. B) Keynesian economists. C) economists who conclude that money illusion is widespread. D) economists who conclude that wages and prices are inflexible .

Q: A decrease in U.S. prices relative to European pricesA) will decrease European exports to the United States. B) will increase U.S. imports from Europe.C) will decrease U.S. exports to Europe. D) will not affect U.S. trade with Europe.

Q: Which one of the following helps preserve incentives to develop new technologies?A) patents B) tariffsC) quantity restrictions on imports D) income taxes

Q: Adjusting nominal Gross Domestic Product (GDP) for price changes from a base year yieldsA) current Gross Domestic Product (GDP). B) real Gross Domestic Product (GDP).C) constant disposable income.D) Gross Domestic Product (GDP) net of relative price changes.

Q: Gross Domestic Product (GDP) isA) the total wholesale value of all final goods and services produced by factors of production owned by citizens of a nation.B) the total market value of all services produced by factors of production located within a nationʹs borders.C) the total market value of all goods produced within a nationʹs borders.D) the total market value of all final goods and services produced by factors of production located within a nationʹs borders.

Q: Last year a CD had a price of $12 and this year it is $15. Which of the following does NOT express this price change accurately?A) Price rose by 25 percent. B) Price rose by $3.C) If this year is the base year, the index number for last year would be 80. D) If last year is the base year, the index number for this year would be 80.

Q: Political freedom can sometimes moderately reduce economic growth because A) special interest groups may gain at the expense of the overall economy. B) campaign contributions rob the economy of investment.C) most jobs are in unions that are politically connected. D) none of the above.

Q: A trade-off between unemployment and inflation is reflected in the A) natural rate of unemployment. B) Phillips Curve. C) economic stability. D) nonaccelerating inflation rate of unemployment (NAIRU).

Q: What are the direct and indirect effects of an increase in the money supply?

Q: To increase the money supply,A) the Federal Reserve should sell government securities. B) the commercial banks should reduce their loans.C) the Federal Reserve should buy government securities. D) the Federal Reserve should reduce its loans to banks.

Q: Which of the following is NOT included in the money supply when the transactions approach is used?A) Money market deposit accounts. B) Travelerʹs checks. C) Transaction deposits. D) Currency.

Q: If the net public debt expanded last year, then which of the following most likely occurred during the year? A) The governmentʹs budget was balanced. B) The government experienced a budget surplus. C) The government experienced a budget deficit. D) The governmentʹs tax collections exceeded its spending.

Q: The crowding-out effect isA) the tendency of contractionary fiscal policy to cause an increase in planned investment or planned consumption in the U.S. private sector.B) the tendency of expansionary fiscal policy to cause an increase in planned investment but not in planned consumption in the U.S. private sector.C) the tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the U.S. private sector.D) the tendency of contractionary fiscal policy to cause an increase in planned investment or planned consumption in the U.S. private sector.

Q: What would happen to the planned investment function if business taxes were increased?A) It would shift to the right. B) It would shift to the left.C) It would shift upward. D) There would be no change.

Q: Which of the following statements is true? A) consumption + saving = disposable income B) consumption + saving = personal income C) consumption - investment = disposable income D) consumption - saving = personal income

Q: A congressman states, ʺIf a government attempts to increase employment through increased government spending, all we will end up with is a higher price level.ʺ This congressman assumes that theA) aggregate demand curve is a horizontal line. B) aggregate demand curve is a vertical line.C) aggregate supply curve is a horizontal line. D) aggregate supply curve is a vertical line.

Q: The interest rate effect shows that if the price level increases,A) consumers and businesses will increase their spending to buy the same amount of goods as before to make up for the higher interest rates.B) consumers and businesses will decrease their spending as the interest rate increases, thereby pushing up the cost of acquiring funds.C) U.S. exports and imports will both decrease. D) the real value of financial assets will increase.

Q: According to new growth theorists, more technological improvements can be brought about byA) a government policy that encourages increased consumption. B) government policies that lead to increases in human capital. C) tougher immigration laws.D) the government taking a more active role in regulating industries.

Q: The nominal value of Gross Domestic Product (GDP) is expressed inA) inflation-adjusted prices. B) constant dollars. C) base-year dollars. D) none of the above.

Q: Which of the following items is excluded from GDP? A) Services a barber performs in cutting hair B) Production and sale of hair-cutting equipment C) Services a barber performs in repairing his own hair-cutting equipment D) The construction of a new barbershop

Q: The year that is chosen as the point of reference for comparison of prices in other years is known as theA) base year. B) price index.C) purchasing power. D) consumer price index.

Q: In the determination of economic growth, political freedomA) is more important than economic freedom.B) appears to be less important than economic freedom. C) contributes little to job growth.D) is equally as important as economic freedom.

Q: The natural rate of unemployment isA) the unemployment rate when cyclical unemployment is the only type of unemployment.B) the unemployment rate when there is no frictional unemployment.C) the rate of unemployment associated with long -run equilibrium. D) zero.

Q: Suppose the Fed increases the money supply. As a result of this, people deposit excess funds into their bank accounts, causing banks to have excess reserves. As a result, the banks lower the interest rates that they charge on loans, and investment rises, causing an increase in aggregate spending. This is known as a(n)A) direct effect of monetary policy. B) indirect effect of monetary policy. C) direct effect of fiscal policy. D) indirect effect of fiscal policy.

Q: The reserve ratio equals 20 percent. The Fed buys $1 million in U.S. government securities. The most the money supply can increase isA) $1 million. B) $4 million. C) $5 million. D) $10 million.

Q: If the transactions approach to measuring money is used, then the money supply consists ofA) currency only.B) transaction deposits only.C) currency and transaction deposits only.D) currency, checkable and debitable deposits, and travelerʹs checks.

Q: The gross public debt is theA) amount of U.S. paper currency and coins in circulation.B) difference between current government expenditures and tax revenues. C) ratio of past deficits to past surpluses.D) total of all accumulated deficits and surpluses.

Q: If the government increases spending but does not raise taxes,A) aggregate demand will increase without any effect on the price level. B) borrowing by the government will take place.C) the government will have to sell some assets, such as oil and national parks.D) the government will have to either lower expenditures or raise taxes the next year.

Q: One of the primary determinants of planned real investment spending is theA) expectation of future profits. B) rate of real consumption spending.C) rate of real government spending. D) rate of real saving.