Q&A Hero

Q: A sale of U.S. government securities by the Fed causes a(n)A) expansion of the money supply equal to the amount of the securities sold.B) contraction of the money supply equal to the amount of the securities sold.C) expansion of the money supply of more than the amount of the securities sold.D) contraction of the money supply of more than the amount of the securities sold.

Q: Which of the following is NOT part of M1?A) Money market deposit accounts B) Coin and currencyC) Checking deposits D) Travelerʹs checks

Q: According to the text, the net public debt to Gross Domestic Product (GDP) ratio is currently aboutA) 10%. B) 25%. C) 60%. D) 120%.

Q: Refer to the above figure. If the relevant aggregate demand curve was AD2, the government could do all of the following to close the existing gap EXCEPTA) increase government spending on roads.B) reduce marginal tax rates.C) reduce corporate taxes.D) reduce defense spending.

Q: The planned investment function shows thatA) real gross investment falls as real NNP increases.B) a negative relationship exists between the level of planned investment and the interest rate.C) a positive relationship exists between planned consumption and planned investment.D) at higher levels of planned saving, planned investment increases.

Q: When the value of the dollar increases, 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: Why is there NO persistent unemployment in the classical model?A) The wage level adjusts to eliminate unemployment. B) The interest rate adjusts to eliminate unemployment.C) The rate of economic growth is always high enough to allow those who want to work at current wages to find jobs.D) Unionization creates job security for workers.

Q: Holding nominal money balances constant, a decrease in the price levelA) causes the real value of the money balances to increase, in turn increasing total planned real expenditures.B) causes the real value of the money balances to decrease, in turn decreasing total planned real expenditures.C) causes the real value of the money balances to increase, thereby increasing the interest rate. D) generates a reduction in the value of the money balances, leading to higher interest rates and a decrease in total planned real expenditures.

Q: For developing countries, one of the more effective ways to become more developed isA) to invest in secondary schools. B) to invest more in the military.C) to increase trade barriers. D) to reduce direct foreign investment.

Q: Government spending50Profit28Social Security contributions20Indirect business taxes10Corporate taxes5Imports5Personal income taxes8Exports3Rent54Interest5Wages231Depreciation10Consumption expenditures250Government transfer payments8Gross Private Domestic Investment40 Using the above table, the Personal Income (PI) for the country isA) 84. B) 228. C) 155. D) 301.

Q: Which of the following is included in determining Gross Domestic Product? A) The purchase of a new car B) The purchase of a used car C) A housewife preparing breakfast D) A gardener canning vegetables for consumption during the winter

Q: Which of the following price indexes is designed to measure changes in the prices of goods and services purchased by a typical individual?A) Producer Price Index B) Gross Domestic Product (GDP) DeflatorC) Index of Leading Economic Indicators D) Consumer Price Index

Q: The U.S. economic data for the last 50 years indicates thatA) there is an inverse relationship between unemployment rate and inflation rate.B) there is a direct relationship between unemployment rate and inflation rate.C) during recessions the unemployment rate was always twice as high as the inflation rate.D) there has been no long-run relationship between unemployment and inflation rates.

Q: During a recession, the overall unemployment rate A) falls rapidly. B) exceeds the natural rate of unemployment. C) falls below the natural rate of unemployment. D) equals the inflation rate.

Q: One result of a contractionary monetary policy would beA) a decline in the price level. B) an increase in the money supply.C) an increase in business investment. D) lower interest rates.

Q: A purchase of U.S. government securities by the Fed causesA) an expansion of the money supply equal to the amount of the securities purchased. B) a contraction of the money supply equal to the amount of the securities purchased.C) an expansion of the money supply of more than the amount of the securities purchased. D) a contraction of the money supply of more than the amount of the securities purchased.

Q: All of the following are included in M1 EXCEPTA) coin and currency. B) money market mutual fund shares.C) travelerʹs checks. D) checking account balances.

Q: According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?A) 20% B) 50% C) 800% D) 90%

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

Q: Which of the following is NOT included in the flow of investment spending that is part of total planned expenditures in the economy?A) Purchases of corporate stock B) Spending on capital goodsC) Inventory investment D) Fixed investment

Q: Refer to the above figure. If the aggregate demand curve shifts beyond AD 5, then the economy will experienceA) demand-pull inflation. B) cost-push inflation.C) structural inflation. D) stagflation.

Q: In the classical model, the interest rate will adjust to equateA) consumption spending with real GDP. B) saving with investment.C) the economic growth rate with the growth rate of import spending. D) export spending with import spending.

Q: The wealth effect is another term for theA) substitution effect. B) the indirect effect.C) the real-balance effect. D) the interest rate effect.

Q: According to economist Paul Romer, economies that wish to experience growth must A) invest most of their savings in national defense. B) invest in knowledge. C) drastically lower their standards of living. D) become command economies.

Q: Government spending50Profit28Social Security contributions20Indirect business taxes10Corporate taxes5Imports5Personal income taxes8Exports3Rent54Interest5Wages231Depreciation10Consumption expenditures250Government transfer payments8Gross Private Domestic Investment40 Using the above table, the National Income (NI) for the country isA) 338. B) 228. C) 318. D) 662.

Q: Which of the following transactions is included in Gross Domestic Product? A) A Social Security check received by a retired couple B) A gift card that a mother gives her son C) A used textbook that one student gives another student in exchange for an iPod D) Tips received by a waitress who reports them to the IRS

Q: The Consumer Price Index measuresA) the average of raw material prices paid by producing firms.B) the level of prices with respect to goods and services purchased by a typical consumer in urban areas.C) the average of the prices of all goods produced in a country and goods imported from other countries.D) hourly wage rates of manufacturing workers.

Q: Examination of data since 1953 indicates that during this period stretching more than half a century, the Phillips curve A) fails to exist. B) is smoothly upward sloping. C) is smoothly downward sloping. D) slopes smoothly upward at first but then slopes smoothly downward.

Q: From the late 1980s to 2000, the natural rate of unemployment A) climbed sharply. B) held constant. C) fluctuated up and down, following the path of the actual rate of unemployment. D) gradually declined.

Q: In the long run, a decrease in the money supply will A) decrease real Gross Domestic Product (GDP). B) increase real Gross Domestic Product (GDP).C) increase the price level.D) decrease the price level.

Q: The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities and the check is deposited in Bank A, but Bank A increases its vault cash by the entire amount, then the money supplyA) does not increase. B) increases by $800,000.C) increases by $1 million. D) increases by more than $1 million.

Q: The transactions approach to measuring money (M1) includes all of the following EXCEPT A) travelerʹs checks. B) certificates of deposit.C) checking accounts. D) currency.

Q: The total value of all outstanding federal government securities is called A) the budget deficit. B) the public debt. C) the trade deficit. D) crowding out.

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: Which of the following would increase the level of planned real investment?A) An increase in the interest rate B) An expectation of higher future profitsC) An expectation of higher future costs D) An increase in business taxes

Q: Refer to the above figure. If the aggregate demand curve shifts beyond AD 5, which of the following would we NOT expect?A) Strong demand-pull inflationB) No increase in real Gross Domestic Product (GDP)C) Strong and rapid increases in the price levelD) Increases in real net domestic product

Q: Sayʹs law implies thatA) wages and prices are not flexible.B) people supply goods and services to the market because they want to consume other goods and services.C) government regulation is needed to prevent shortages from becoming a problem. D) government regulation is needed to prevent surpluses from becoming a problem.

Q: If you have $5000 and the GDP deflator decreases from 100 to 80A) the $5000 will buy 20 percent less of the goods and services produced by society. B) the $5000 will buy 20 percent more of the goods and services produced by society. C) the value of the $5000 decreases.D) the value of the $5000 remains constant.

Q: Paul Romerʹs theory on the importance of knowledge differs from traditional theory in that RomerA) argues that an investment -knowledge cycle allows a once-and-for-all increase in investment to permanently raise a countryʹs growth rate, while traditional theory argues that a once-and-for-all increase in investment leads to a higher standard of living but not to a higher growth rate.B) argues, that investment is not important in promoting growth, but that the acquisition of knowledge is the sole determinant of economic growth.C) argues, that an investment-knowledge cycle exists which requires that investment rates keep increasing or else growth rates will fall, while traditional theory argues that growth rates will not fall, although they will not increase either.D) emphasizes investment rates while traditional theory emphasizes the importance of knowledge as a factor of production.

Q: Government spending50Profit28Social Security contributions20Indirect business taxes10Corporate taxes5Imports5Personal income taxes8Exports3Rent54Interest5Wages231Depreciation10Consumption expenditures250Government transfer payments8Gross Private Domestic Investment40 Using the above table, the Net Domestic Product (NDP) for the country isA) 662. B) 84. C) 328. D) 338.

Q: Suppose the total value of all assets in the United States is $10 trillion. In 2010, the total value of all final services produced in the United States was $150 billion, the total value of all final goods produced in the United States was $350 billion, and the total value of all final goods and services produced by American firms in other countries was $100 billion. In this situation, GrossDomestic Product for 2006 wasA) $600 billion. B) $510 billion.C) $500 billion.D) $10.5 trillion.

Q: According to the above table, in the base period (Year 1), the price index isA) 100. B) 213.3. C) 46.9. D) 180.

Q: What kind of relationship appears to actually exist, if one examines the actual data regarding the inflation rate and the unemployment rate for all years since 1953?A) a direct relationship B) a one-to-one relationshipC) an inverse relationship D) no relationship in the long run

Q: From 1950 until the late 1980s, the natural rate of unemployment in the United StatesA) fell sharply as government retraining programs helped put the unemployed back to work. B) cycled up and down in tandem with the actual rate of unemployment.C) rose sharply, always exceeding the actual rate of unemployment. D) trended upward.

Q: In the above figure, if the economy is at equilibrium at E1, the Fed would most likelyA) adopt a contractionary monetary policy.B) adopt an expansionary monetary policy.C) attempt to lower the aggregate demand in the economy.D) attempt to lower the price level below 120.

Q: Mary decides to buy a bond from Joe for $100. The money supply willA) neither increase nor decrease. B) increase by $100.C) increase by more than $100. D) decrease by $100.

Q: The transactions approach to measuring money includesA) government bonds.B) the value of shares of stock in commercial banks.C) travelerʹs checks. D) all of these.

Q: The difference between net public debt and gross public debt is A) all government interagency borrowing. B) the interest paid annually on the public debt. C) the amount owed to individuals and firms outside the United States. D) the current yearʹs budget deficit from the amount of public debt at the start of the year.

Q: The fiscal policy of the United States isA) summarized in the budget of the U.S. federal government. B) the sum of the budgets of each state and municipality.C) published in the Federal Reserve Bankʹs Annual Report.D) announced by the President in his State of the Union message.

Q: Compared to consumption spending, investment historically has tended to beA) greater. B) more stable. C) stagnant. D) more variable.

Q: Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.A) aggregate supply to shift leftward. B) aggregate supply to shift rightward.C) aggregate demand to shift leftward. D) aggregate demand to shift rightward.

Q: Which of the following is NOT a key assumption of the classical model?A) There is a single monopoly seller in many markets for goods and services.B) People cannot be fooled by money illusion.C) People are motivated by self-interest. D) Wages and prices are flexible.

Q: The real-balance effect refers to A) the real interest rate. B) the production of real goods and services as opposed to financial instruments. C) the prices of goods and services. D) the real value of cash balances that a person is holding.

Q: Which of the following does free trade encourage? A) More rapid spread of technology B) Higher rates of economic growth C) Domestic industriesʹ access to larger markets D) All of the above

Q: Government spending50Profit28Social Security contributions20Indirect business taxes10Corporate taxes5Imports5Personal income taxes8Exports3Rent54Interest5Wages231Depreciation10Consumption expenditures250Government transfer payments8Gross Private Domestic Investment40 Using the above table, the Gross Domestic Product (GDP) for the country isA) 662. B) 84. C) 746. D) 338.

Q: Gross Domestic Product is best defined asA) the total market value of all final goods and services produced during a year by factors of production located within a nationʹs borders.B) the total market value of all intermediate goods and services produced during a year by factors of production located within a nationʹs borders.C) the value added to all goods produced in an economy during a year.D) the total market value of all final goods and services that exist in an economy at a given point in time.

Q: According to the above table, in Year 3, the price index for widgets isA) 100. B) 213.3. C) 46.9. D) 180.

Q: An increase in unemployment insurance and other transfer payments mayA) increase the natural rate of unemployment.B) increase the number of discouraged workers.C) reduce the rate of inflation at every level of unemployment. D) lead to less unanticipated inflation.

Q: In the above figure, if the economy is in equilibrium at E 1, thenA) the economy is producing below its potential long-run equilibrium at full employment.B) the economy is producing above its potential long-run equilibrium at full employment. C) there is an inflationary gap in the economy.D) the economy is in a period of high inflation.

Q: When the Fed buys government securities,A) reserves increase, leading to a decrease in the money supply by an amount more than the purchase of the government securities.B) reserves decrease, leading to a increase in the money supply by an amount more than the purchase of the government securities.C) reserves increase, leading to a increase in the money supply by an amount more than the purchase of the government securities.D) reserves decrease, leading to a decrease in the money supply by an amount more than the purchase of the government securities.

Q: When we examine the U.S. money supply, the smallest component of M1 is A) currency and coins. B) transaction deposits. C) certificates of deposit. D) travelerʹs checks.

Q: All of the following are possible explanations for the increase in U.S. government budget deficits as a percentage of GDP since the early 2001 EXCEPTA) increases in tax revenues. B) increases in payments for entitlements.C) increases in government spending. D) decreases in tax rates.

Q: Discretionary Fiscal policyA) is the use of government spending and tax policies to influence economic growth and inflation.B) is the use of regulation to influence economic growth and inflation.C) is the purchase and sale of Treasury securities to influence economic growth and inflation. D) is the conversion of nominal data to real data.

Q: Suppose the marginal propensity to consume is 0.75. What does this mean? What do we know about the marginal propensity to save? What do we know about the average propensity to consume?

Q: Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?A) a recessionary gap B) an inflationary gapC) a deflationary gap D) none of the above

Q: In the classical model,A) a decrease in aggregate demand will lead to a decrease in the price level and a decrease in real GDP.B) changes in aggregate supply leave real GDP unchanged.C) a decrease in aggregate demand will lead to an increase in the price level and a decrease in real GDP.D) changes in aggregate demand affect only the price level, not real GDP.

Q: The change in total planned real expenditures resulting from a change in the real value of money balances when the price level changes, all other things held constant, isA) the real-balance effect. B) the interest rate effect. C) the open economy effect. D) demand side inflation.

Q: Free trade is viewed as key to economic development becauseA) it encourages a faster spread of technology.B) it encourages a countryʹs exports only.C) it brings in expensive new technology. D) none of the above is correct.

Q: Transfer payments are included inA) gross domestic product. B) net domestic product. C) national income. D) personal income.

Q: Gross Domestic Product measuresA) the total value of labor used in the economy.B) the total market value of final goods and services produced within a nationʹs borders. C) the total income received by residents of a nation.D) the total worth of all goods consumed within the borders of a nation.

Q: Assume that the current price of a market basket of goods is $2,500 and the base year price of the same market basket is $1,340. The price index isA) 53.6. B) 40.0. C) 138.3. D) 186.6.

Q: If the average interval between firmsʹ price adjustments is relatively short,A) an increase in aggregate demand will cause a relatively short -lived increase in real GDP. B) an increase in aggregate demand will cause a relatively long -lived increase in real GDP.C) a reduction in aggregate demand will cause a relatively long -lived reduction in real GDP. D) both B and C

Q: Frictional and structural unemployment both exist whenA) the economy is in an expansionary phase.B) the economy is in long-run equilibrium.C) the economy is at the peak of the business cycle.D) the economy is in short-run equilibrium.

Q: In the above figure, assume the economy is in equilibrium at point d. Then the Fed decreases the money supply so that the new aggregate demand curve is AD 1. In the long run, the new price level will beA) 100. B) 120. C) 130. D) 110.

Q: When the Fed sells government securities,A) reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.B) reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.C) reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.D) reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.

Q: Which one of the following is NOT a part of the M1 definition of money?A) Paper currency (i.e., Federal Reserve notes) B) CoinsC) Savings accountsD) Checkable and debitable accounts

Q: Between the years 1998 and 2001, the U.S. government experiencedA) budget surpluses. B) balanced budgets.C) budget deficits. D) contractionary budget cycles.

Q: Government spending conducted for the purpose of achieving full employment, price stability, or economic growth is an example ofA) monetary policy. B) interest-rate policy. C) exchange-rate policy. D) fiscal policy.

Q: What is the primary determinant of real saving and real consumption according to Keynes? Explain.

Q: An appreciation of the U.S. dollar the price of U.S. imports, and the price of U.S. exports.A) lowers, lowers B) increases, increasesC) increases, lowers D) lowers, increases