Q&A Hero

Q: Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP)?A) The purchase of legal servicesB) The purchase of a share of stock in General MotorsC) The purchase of wheat to make breadD) The purchase of a second -hand lawnmower from your neighbor

Q: Last year the price of a dozen eggs was $1, and this year the price is $1.30. Which of the following does NOT express this price change accurately?A) The price increased 30 percent. B) The price increased by 30 cents.C) If last year was the base year, the index number for this year would be 130. D) If this year is the base year, the index number for last year would be 130.

Q: The stickiness of wages and prices will causeA) changes in aggregate demand to have no short -run effects on real GDP. B) changes in aggregate demand to have long -run effects on real GDP.C) changes in aggregate demand to have both short-run and long-run effects on real GDP. D) changes in aggregate demand to have short -run effects on real GDP.

Q: In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD 1 to AD2. In the short run, this would causeA) the price level to fall from P1 to P2, real Gross Domestic Product (GDP) to fall from Y1 to Y2, and the rate of unemployment to increase.B) the price level to move from P1 to P2, but real Gross Domestic Product (GDP) would stay at Y1.C) the price level to fall by some amount less than P1 but greater than P2, and the rate of unemployment would decrease.D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment.

Q: Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new short-run equilibrium is given by pointA) A. B) B. C) C. D) D.

Q: Suppose that the reserve ratio is 20 percent. A bankʹs customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal toA) $0. B) $20,000. C) $200,000. D) $500,000.

Q: Small-denomination time deposits areA) considered part of near money.B) included in the definition of both M1 and M2.C) included in the definition of M1, but not in M2. D) the same as transaction deposits.

Q: Other things being equal, what is the effect of deficit spending on credit markets?A) Both the demand for credit and the supply of credit will increase. B) Both the demand for credit and the supply of credit will decrease.C) The demand for credit increases while the supply of credit remains constant.D) The supply of credit will increase while the demand for credit remains the same.

Q: When the current short-run equilibrium is to the right of the long-run aggregate supply, appropriate discretionary fiscal policy used to address this problem would be toA) increase taxes. B) decrease taxes.C) increase government spending. D) decrease the discount rate.

Q: If business executives become more optimistic about the future, we would expect thatA) the investment curve would shift outward to the right.B) the saving function would shift up.C) the consumption curve would shift up.D) investment spending would decrease.

Q: Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?A) DI + C = S B) DI = C + S C) DI = C * S D) DI = C - S

Q: In the classical model, the aggregate supply curve isA) a horizontal line.B) an upward sloping line. C) a vertical line.D) a combination of horizontal, upward sloping, and vertical lines.

Q: If the price level increases, thenA) the exchange rate will increase, causing U.S. goods to become cheaper and increasing total planned real expenditures.B) imports increase but exports do not change. Therefore, there is no effect on total planned real expenditures.C) foreign residents buy fewer U.S. goods, leaving more goods for U.S. residents and an increase in total planned real production by firms.D) domestic goods are more expensive relative to foreign goods, which reduces total planed real expenditures.

Q: Which of the following is NOT associated with the new growth theory?A) Natural resources B) ResearchC) Technology D) Innovation

Q: Billions of DollarsConsumption6,500Gross private domestic investment1,900Government spending less transfer payments1,200Imports600Exports500Depreciation1,500Indirect business taxes and transfers750Using the above table, the GDP is (in billions of dollars)A) 10,200. B) 8,200. C) 8,900. D) 9,500.

Q: Wheat used for producing bread isA) a final good. B) not going to generate any employment. C) an intermediate good. D) a durable good.

Q: Which of the following measures gives the earliest warning of increasing inflation? A) The Consumer Price Index B) The Producer Price Index C) The Personal Consumption Expenditure Index D) All of these should signal the same short -run inflation

Q: Most economists agree with which of the following?A) Active policymaking is likely to exert sizable long -run effects on real GDP.B) Active policymaking is unlikely to exert sizable long-run effects on real GDP.C) Passive policymaking is likely to exert sizable long -run effects on real GDP. D) none of the above

Q: An unexpected increase in aggregate demand typically causesA) frictional unemployment to increase but structural unemployment to decrease.B) the price level to increase but has no effect on the unemployment rate. C) the price level to increase and the unemployment rate to fall.D) the price level to increase and the unemployment rate to increase.

Q: The short-run effect of an increase in the money supply is to A) increase real GDP only. B) increase the price level only. C) increase both real GDP and the price level. D) increase nominal GDP but decrease the price level.

Q: The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealerʹs deposit account at Bank A. Bank A makes the maximum loan possible to a construction company, which buys materials with the loan. The check is deposited in Bank B, which loans out all it can to a car dealership. To this point, the money supply has increased byA) $1 million. B) $1.8 million. C) $2.44 million. D) $3 million.

Q: Assets that can be easily converted into money without significant loss of value areA) transactions balances. B) near monies. C) currencies. D) liabilities.

Q: If the government borrows to purchase goods and services, todayʹs consumption of government goods and services will be paid for byA) todayʹs taxpayers.B) government employees. C) future taxpayers.D) todayʹs taxpayers and tomorrowʹs taxpayers in even shares.

Q: Suppose the current level of real GDP is below the full -employment level of real GDP. Which of the following represents a fiscal policy action that could be implemented to reduce the size of this recessionary gap?A) Increase government spending. B) Decrease interest rates.C) Increase the money supply. D) all of the above

Q: In the Keynesian model, planned investment is inversely related toA) the interest rate. B) the level of income.C) the wage rate. D) the tax rate.

Q: Which of the following is NOT a simplifying assumption in the simple Keynesian model?A) Net investment and gross investment are equal.B) All profits are distributed to the business owners.C) Real disposable income equals government purchases of goods and services.D) There is no foreign trade.

Q: Full employment in the classical model is maintained byA) flexible interest rates. B) flexible wage rates.C) flexible prices. D) flexible income.

Q: Higher interest ratesA) reduce total planned real expenditures because they increase the cost of borrowing funds. B) reduce total planned real expenditures because they reduce the income of bankers and other creditors.C) increase total planned real expenditures because they increase the incomes of all people in the economy.D) increase total planned real expenditures because they lower the costs of building new plants and equipment.

Q: Traditionally, economists regarded improvements in technology asA) the most important factor that helped explain economic growth, and basically the only factor that would cause economic growth.B) an outside factor that helped explain economic growth.C) an important factor in explaining economic growth that was due to economic forces that also could easily be explained.D) unrelated to economic growth in any systematic way.

Q: The amount of income that households actually receive before they pay personal income taxes definesA) national income (NI). B) personal income (PI).C) disposable personal income (DPI). D) net domestic product (NDP).

Q: If Jack refinished his basement himself, the value of his workA) is not included in Gross Domestic Product (GDP). B) is included in Gross Domestic Product (GDP).C) is only included in Gross Domestic Product (GDP) if he uses U.S. made components. D) is included in the next yearʹs Gross Domestic Product (GDP).

Q: The broadest indication of economy-wide inflation is captured by theA) Consumer Price Index.B) Gross Domestic Product (GDP) deflator. C) Producer Price Index.D) Personal Consumption Expenditure Index.

Q: An economist who would most likely use active policy making would support which of the following conclusions?A) Pure competition is not typical in most markets. B) Price flexibility is common in most markets.C) Demand shocks have little or no short -run effects on real Gross Domestic Product (GDP) and unemployment.D) Supply shocks explain most business cycles.

Q: Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?A) Expansionary unemployment B) Cyclical unemploymentC) Frictional unemployment D) Structural unemployment

Q: An increase in the money supply willA) increase aggregate supply. B) decrease aggregate supply.C) increase aggregate demand. D) decrease aggregate demand.

Q: The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealerʹs deposit account at Bank A. Bank A loans the maximum amount possible to a construction company, which buys materials from a lumber yard. The lumberyard deposits the construction companyʹs check in Bank B. What is the maximum loan Bank A can now make and the maximum loan Bank B can now make?A) Bank A: 0; Bank B: $640,000 B) Bank A: 0; Bank B: $800,000C) Bank A: $800,000; Bank B: $640,000 D) Bank A: $800,000; Bank B: 0

Q: Which of the following is NOT part of M1 but is included in M2? A) Currency B) Small-denomination certificates of deposits C) Travelerʹs checks D) Cash

Q: Since the late 1980s, the share of the net public debt owed to foreign interests hasA) remained constant. B) decreased.C) increased.D) gone up and then down, finally settling at around 10 percent.

Q: Refer to the above figure. If the relevant aggregate demand curve is AD1, then the economy is experiencingA) an inflationary gap. B) a recessionary gap.C) a deflationary gap. D) full employment.

Q: What happens as interest rates fall?A) The number of profitable investment opportunities declines.B) The opportunity cost of using retained earnings to finance investment spending declines. C) Planned investment spending also falls.D) Planned investment spending remains constant since it depends on profit projections not interest rates.

Q: Using a graph, show the effects of a weaker dollar on the economy. Explain.

Q: The concept of Sayʹs law can be summed up by the phrase, A) ʺsupply creates its own demand.ʺB) ʺdemand creates its own supply.ʺC) ʺsupply and demand are equivalent concepts. ʺD) ʺsupply and demand are irrelevant concepts.ʺ

Q: Which of the following statements is true about the interest rate effect?A) The interest rate effect is why the aggregate demand curve is upward sloping.B) A lower price level lowers the interest rate, which causes businesses and consumers to increase their desired spending.C) A higher price level lowers the interest rate, which causes business and consumers to increase their desired spending.D) Expenditures will change as a result of a change in the real value of money balances when there is a change in the price level.

Q: Which of the following is true of trends in the number of new U.S. patents?A) There was a steady increase in new patents throughout the 1970s. B) There was a surge in new patents in the latter part of the 1990s.C) The number of new patents granted each year has remained unchanged since the early 1970s.D) The number of new patents granted each year declined by more than 50 percent after 2001.

Q: Which of the following would NOT be a part of personal income? A) indirect business taxes B) payments received from Social Security C) retirement checks D) corporate dividend payments to shareholders

Q: Intermediate goods are NOT included in Gross Domestic Product (GDP) calculations becauseA) they are used in the production of final goods and would then be counted twice. B) they are produced overseas.C) they are made from foreign raw materials. D) they have very low value added.

Q: The statistical measure of the weighted average of prices of goods purchased by a typical individual is called theA) Producer Price Index.B) Gross Domestic Product (GDP) deflator. C) Consumer Price Index.D) Personal Consumption Expenditure Index.

Q: If a group of economists believes the following points are true, which is likely to be their policy making stance? Aggregate demand shocks have no long run effect on real Gross Domestic Product (GDP) or unemployment. Pure competition is widespread throughout the economy. Real wages are flexible. The Phillips Curve trade -off does not exist in the long run. A) They will support active policy making. B) They will support passive policy making. C) They will support discretionary policy making. D) They will argue that any attempt at economic policy making is futile.

Q: Which of the following unemployment rates can be negative?A) the cyclical unemployment rate B) the natural unemployment rate C) the seasonal unemployment rateD) the official unemployment rate reported by the Bureau of Labor Statistics

Q: Which of the following will NOT occur in the short run when the money supply decreases?A) People will buy fewer goods and services.B) The interest rate will increase. C) Aggregate supply decreases. D) The price level decreases.

Q: The reserve ratio is 20 percent. After the Fed buys $1 million in U.S. government securities from a bond dealer by transmitting the funds to the dealerʹs deposit account at Bank A, Bank A lends a construction company an amount equal to its excess reserves. The construction company spends the entire amount on lumber from a lumber yard, which deposits the construction companyʹs check in its deposit account with Bank A. The maximum loan Bank A can now make isA) $0. B) $640,000. C) $800,000. D) $1 million.

Q: A time deposit with a fixed maturity date offered by banks is called aA) checking account.B) savings deposit.C) small-denomination certificate of deposit. D) corporate bond.

Q: The amount of funds the Social Security system has loaned the federal government isA) included in the net public debt.B) added to the gross public debt to calculate the net public debt.C) not included in the gross public debt. D) excluded from the net public debt.

Q: Refer to the above figure. Suppose the relevant aggregate demand curve is AD2. If the government wants to use fiscal policy to close the existing gap, it shouldA) increase taxes. B) decrease taxes.C) increase the money supply. D) increase government spending.

Q: The investment function is represented byA) an inverse relationship between the interest rate and the value of planned investment.B) the direct relationship between the interest rate and the value of planned investment. C) the direct relationship between taxes and government spending.D) the indirect relationship between taxes and government spending.

Q: What effect does a stronger dollar have on aggregate supply? Why?

Q: In the classical model, changes in interest rates will always ensure thatA) consumption equals production. B) saving equals investment.C) consumption equals investment. D) consumption equals income.

Q: The interest rate effect is part of the reasonA) the short-run aggregate supply curve is upward sloping. B) the long-run aggregate supply curve is vertical.C) the aggregate demand curve is upward sloping.D) the aggregate demand curve is downward sloping.

Q: Human capital is A) the saving done by human beings. B) the knowledge and skills that people in the work force acquire through education and training. C) a measure of the labor productivity of workers. D) the investment people make in industries that make capital goods.

Q: Personal income isA) the sum of all incomes received by households on welfare.B) the income households have after paying federal taxes. C) the sum of all incomes received by households.D) the sum of all incomes earned by sole proprietorships and partnerships.

Q: Which of the following would be included when calculating Gross Domestic Product? A) The purchase of a previously owned house for $70,000 B) The purchase of a used $10,000 automobile C) A Social Security check for $800 D) none of the above

Q: Assume that there was a 10 percent increase in the price of all goods in 2010; if the base year is 2009, then the price index in 2010 will beA) 90. B) 110. C) 200. D) 1100.

Q: What is the modern view of the Phillips curve?

Q: If cyclical unemployment is negative, thenA) the actual unemployment rate is below the natural rate of unemployment.B) the natural rate of unemployment is getting smaller.C) there have been some errors in classifying the type of unemployment experienced by some people.D) structural unemployment must be increasing.

Q: The ʺindirect effectʺ of an increase in the money supply is toA) increase aggregate demand as people try to spend their excess money balances.B) increase aggregate demand as interest rates fall and investment spending increases. C) increase aggregate supply as firms anticipate future profits.D) decrease the price level.

Q: The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealerʹs deposit account at Bank ABC, thenA) Bank ABC can make no additional loans.B) Bank ABC can make additional loans up to $800,000.C) Bank ABC can make additional loans up to $1 million.D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.

Q: Thrift institutions A) receive most of their funds from the publicʹs savings deposits. B) include commercial banks and investment firms. C) include credit unions but not savings and loan associations. D) do not offer transaction deposits.

Q: Net public debt is theA) difference between tax revenues and government expenditures each year.B) sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions.C) sum of accumulated government deficits and surpluses held by U.S. government agencies. D) sum of accumulated government deficits and surpluses held by large money center banks.

Q: Refer to the above figure. If the relevant aggregate demand curve is AD2, what is the current economic situation?A) inflationary gap B) recessionary gapC) equilibrium D) overemployment

Q: An increase in the interest rate will causeA) planned investment spending to increase.B) planned investment spending to decrease. C) the investment function to shift out.D) the investment function to shift in.

Q: When the value of the dollar decreases, the net effect on the economyA) will be an increase in short-run aggregate supply and a decrease in aggregate demand. B) will be decrease in short-run aggregate supply and an increase in aggregate demand.C) will be an increase in both aggregate demand and aggregate supply.D) will be a decrease in both aggregate demand and aggregate supply.

Q: Which of the following is NOT an assumption of the classical system?A) Pure competition exists. B) People are motivated by self interest.C) Wages and prices are inflexible. D) There is no money illusion.

Q: An indirect effect of an increase in the price level works through A) people substituting out of domestic goods and into foreign goods as exchange rates rise. B) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate. C) interest rates as people save more as the higher prices make their money balances less attractive. D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.

Q: What does the fact that U.S. students are falling behind other nationsʹ students in math and science have to do with economic growth?A) Nothing. People in the United States just donʹt like to fall behind in anything as a matter of pride.B) If U.S. students donʹt excel in math and science, the nation will see fewer plays written and fewer pieces of music composed.C) Better technology, a key to economic growth, depends largely on math and science skills. D) Math and science skills donʹt foster economic growth, but it takes math skills to calculate a nationʹs rate of economic growth.

Q: Government spending50Profit28Social Security contributions20Indirect business taxes10Corporate taxes5Imports5Personal income taxes8Exports3Rent54Interest5Wages231Depreciation10Consumption expenditures250Government transfer payments8Gross Private Domestic Investment40 Using the above table, the Disposable Personal Income (DPI) for the country isA) 78. B) 220. C) 147. D) 293.

Q: Goods that are used up entirely in the production of final goods are known asA) durable goods. B) value added goods. C) intermediate goods. D) capital goods.

Q: A price index showsA) the current cost of a basket of goods. B) the relative price of necessities.C) the price of goods in the future.D) the cost of todayʹs goods expressed in terms of the cost of goods in a base year.

Q: Available evidence about price adjustments across U.S. industries indicates thatA) prices are very flexible in all industries. B) prices are very sticky in all industries.C) prices are equally flexible in all industries.D) there is considerable variation in price flexibility across industries.

Q: Cyclical unemployment isA) the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion.B) the difference between the actual unemployment rate and the natural rate of unemployment.C) the unemployment due to union activities and government -imposed restrictions to entry into specific occupations.D) the unemployment due to the unemployment benefits and welfare programs of the government.

Q: The ʺdirect effectʺ of an increase in the money supply is toA) increase aggregate demand as people spend their excess money balances.B) increase aggregate demand as interest rates fall and investment spending increases. C) increase aggregate supply as producers anticipate higher future profits.D) decrease the rate of inflation.