Q&A Hero

Q: In the classical model, A) the level of real GDP per year does not depend on the level of aggregate demand. B) the level of GDP is demand determined. C) changes in aggregate supply affect the price level, not real GDP. D) the level of GDP determines prices independent of demand.

Q: According to the real -balance effect, an increase in the price level willA) leave total planned real expenditures unchanged since the price level of all goods has increased.B) decrease total planned real expenditures because of an increase in interest rates.C) lead to a corresponding increase in total planned real expenditures since businesses are now earning higher profits.D) decrease total planned real expenditures as a result of a decrease in the real value of money balances.

Q: According to the text, data supports the conclusion that lower trade barriersA) help boost per capita real Gross Domestic Product (GDP) growth. B) help to increase welfare payments.C) decrease the standard of living in the country. D) decrease life expectancy.

Q: What is the difference between personal income and disposable personal income?A) the amount of personal income taxes B) indirect personal taxes and transfersC) net U.S. income earned abroad D) depreciation

Q: The total market value of final goods and services produced in an economy during a one -year period isA) Gross Domestic Product. B) net national product. C) profit. D) personal income.

Q: If the current price of a market basket of goods is $850 and the base year price for the same market basket is $500, what is the value of the price index?A) 140 B) 170 C) 120 D) 100

Q: If the average interval between firmsʹ price adjustments is relatively long,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 short-lived reduction in real GDP. D) none of the above

Q: According to the text, minimum-wage laws cause increases inA) employment possibilities. B) structural unemployment.C) poverty. D) productivity.

Q: In the above figure, assume the aggregate demand of the economy is AD 2 and the Fed actions move aggregate demand to AD 1. In this situation, the Fed has practicedA) contractionary monetary policy. B) expansionary monetary policy. C) irresponsible fiscal policy. D) Keynesian fiscal policy.

Q: The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared,A) reserves remain unchanged because the increase of reserves at the dealerʹs bank are offset by an increase in reserves at the Fed.B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bankʹs deposits at the Fed.C) reserves have risen by the amount of the check because the Fed clears the check by increasing the amount of the bankʹs deposits with the Fed.D) reserves have fallen by the amount of the reserves times the reserve ratio and the money supply increases by the difference between the amount of the check and the increase in the reserves.

Q: Which of the following is NOT part of M1?A) Credit cards B) Checking accountsC) Currency D) Travelerʹs checks

Q: What is true about government budget deficits and surpluses since 1940?A) Balanced budgets have been more common than government budget deficits or government budget surpluses.B) There have been more government budget surpluses than government budget deficits. C) There have been more government budget deficits than government budget surpluses. D) The number of government budget deficits is about the same as the number of government budget surpluses.

Q: Tax policy 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) discretionary fiscal policy.

Q: According to the Keynesian model, what are the two components of consumption spending? What determines how consumption changes when real disposable income changes? Explain.

Q: The exchange rate last month was $1 = 3.12 Swiss francs. This month it is $1 = 3.21 Swiss francs. We can say that the value of the dollarA) fell; causing net exports to increase and aggregate demand to rise. B) fell; causing net exports to decrease and aggregate demand to fall.C) increased; causing net exports to decrease and aggregate demand to fall. D) increased; causing net exports to decrease and aggregate demand to rise.

Q: An economy in long-run equilibrium experiences an increase in aggregate demand. According to the classical model,A) the price level will rise first, then real GDP will increase.B) the price level and real GDP will increase at the same time. C) the price level will increase, but real GDP will not change. D) the price level will increase, but real GDP will decrease.

Q: Which of the following is a factor that determines the shape of the aggregate demand curve?A) The real-balance effect B) The nominal-balance effectC) The price level effect D) The wage effect

Q: Regarding open economies, economists tend to find evidence thatA) the more closed an economy is, the higher the rate of growth the economy will experience.B) trade tariffs tend to improve economic growth.C) free trade encourages a more rapid spread of technology, and hence increases economic growth.D) open economies tend to have access to smaller markets than do closed economies.

Q: Suppose Social Security contributions rise by $1 billion while Social Security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result, A) both personal and disposable personal income should increase.B) national income, personal income, and disposable income should increase.C) disposable income should increase while personal income and national income areunchanged.D) personal income, disposable personal income, and national income remain unchanged.

Q: Which of the following best describes a nationʹs Gross Domestic Product? A) The market value of all goods and services produced in the economy, including intermediate goods B) The total market value of all final goods and services produced in the economy during a year C) The constant dollar value of all goods produced in the economy during a year period D) The market value of all goods and services less depreciation

Q: The formula for computing a basic price index isA) (cost of market basket today/cost of market basket in base year) 100. B) (cost of market basket in base year/100) cost of market basket today. C) (cost of market basket in base year/cost of market basket today) 100. D) (100/cost of market basket in base year) + cost of market basket today.

Q: New Keynesian economists generally argue thatA) there is an exploitable tradeoff between unemployment and inflation.B) changes in aggregate demand will have relatively greater effects on real GDP when firms change prices less frequently.C) activist policy can be used to reduce the fluctuations in real GDP. D) all of the above

Q: According to the text, the probability of an unemployed person finding a job doubles whenA) his unemployment benefits expire.B) his unemployment benefits are extended. C) the economy enters a recessionary phase. D) he is threatened with arrest.

Q: In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD 3, then the long-run equilibrium will be at pointA) a. B) b. C) c. D) i.

Q: If a bankʹs deposits at the Fed increase by $10 million, thenA) both the bankʹs assets and the Fedʹs assets increase by $10 million.B) both the bankʹs liabilities and the Fedʹs liabilities increase by $10 million.C) the bankʹs assets increase by $10 million and the Fedʹs liabilities increase by $10 million.D) the bankʹs assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities.

Q: Checkable deposit account balances are A) counted in the calculation of the money supply. B) part of M2 but not part of M1. C) considered credit, but not money. D) only a small component of the money supply.

Q: Expressing the U.S. federal budget deficit as a percentage of Gross Domestic Product (GDP) A) results in inflation-adjusted revenue and expenditure numbers.B) helps us understand the size of the deficit relative to the size of the economy.C) was useful through the 1980s, but is no longer helpful because both the deficit and real Gross Domestic Product (GDP) have grown so large.D) is only useful if the budget deficit is rising at an annual rate of more than 4 percent.

Q: In 2009, Congress passed a bill that involved government spending increases and tax cuts with the purpose of stimulating the U.S. economy. This policy is an example ofA) an automatic stabilizer. B) contractionary fiscal policy.C) expansionary fiscal policy. D) expansionary monetary policy.

Q: At the point at which the consumption function intersects the 45 degree reference lineA) planned real consumption equals real disposable income.B) equilibrium output is supply determined equilibrium output is determined by both.C) planned real saving equals real disposable income.D) planned real consumption of real disposable income equals zero.

Q: The exchange rate last month was $1 = 3.2 Swiss francs. This month it is $1 = 3.12 Swiss francs. We can say that the value of the dollarA) fell, causing net exports to increase and aggregate demand to rise. B) fell, causing net exports to decrease and aggregate demand to fall.C) increased, causing net exports to decrease and aggregate demand to fall. D) increased, causing net exports to decrease and aggregate demand to rise.

Q: In the classical model, a change in aggregate demandA) causes a change in long-run real GDP but not in the price level.B) causes a change in the price level but not in the long -run real GDP. C) causes changes in both the long -run real GDP and in the price level. D) has no effect on either real GDP or the price level.

Q: When the price level increases, total planned real expenditures on goods and services falls. All of the following are responsible EXCEPTA) the substitution effect. B) the real-balance effect.C) the interest rate effect. D) the open economy effect.

Q: When the government grants an inventor a patent,A) he has the exclusive right to make, sell or use his invention for 5 years.B) the patent holder has less incentive to invest in R&D because one successful invention removes the need to develop others.C) the patent holder is guaranteed a profit on his invention.D) the protection of a current invention would increase spending on R&D.

Q: An increase in corporate income taxes would reduceA) net domestic product. B) gross domestic product.C) national income. D) personal income.

Q: U.S. Gross Domestic Product (GDP) does NOT include which of the following? A) business investment B) the value of goods produced in Canada by U.S. owned firms C) net exports D) the purchase of all final goods and services by U.S. households

Q: The nominal value of a good isA) the goodʹs value expressed in purchasing power terms. B) the goodʹs anticipated value one year from now.C) the price of the good in todayʹs dollars, minus an anticipated inflation premium. D) the price of the good in todayʹs dollars.

Q: According to New Keynesians, a reduction in which of the following will tend to cause the inflation rate to decrease? A) anticipated future inflation B) firmsʹ average inflation adjusted per -unit costs of production C) an unexpected reduction in aggregate demand D) all of the above

Q: The natural rate of unemployment includes A) frictional and cyclical unemployment. B) only cyclical unemployment.C) only unemployment due to layoffs and corporate downsizing.D) frictional unemployment and structural unemployment.

Q: In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD 3, then the new short-run equilibrium will be at pointA) a. B) b. C) c. D) i.

Q: The Fed sells $1 million in bonds to a bond dealer. The bond dealerʹs bank experiencesA) a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise.B) a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall.C) an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million.D) no change in assets or liabilities.

Q: The designate M1 measure of money consists of A) the most liquid types of money in the U.S. system. B) small time deposits only. C) credit cards and ATM cards. D) gold and gold coins.

Q: Since 1940, the U.S. government has experiencedA) about the same number of years with budget deficits as with budget surpluses.B) twice as many annual budget surpluses as annual budget deficits. C) only one year with a budget surplus.D) many more budget deficits than budget surpluses.

Q: Expansionary fiscal policy is used toA) combat inflation. B) combat recessions.C) encourage private saving. D) make businesses more efficient.

Q: Autonomous consumption is the level of consumption that isA) consistent with the average standard of living. B) observed at the poverty line.C) independent of real income.D) available to someone earning the minimum wage.

Q: Suppose the U.S. dollar weakens against the euro (and against other major currencies). This weakening of the dollar will cause which of the following to occur?A) The aggregate demand curve will shift to the right and the short -run aggregate supply will shift to the right.B) The aggregate demand curve will shift to the left and the short -run aggregate supply will shift to the right.C) The aggregate demand curve will shift to the right and the short -run aggregate supply will shift to the left.D) The aggregate demand curve will shift to the left and the short -run aggregate supply will shift to the left.

Q: Which of the following is NOT an assumption of the classical model?A) Pure competition. B) Wages and prices are flexible.C) People are motivated by self-interest. D) Wage rigidity.

Q: Other things being equal, the lower are planned real expenditures along an aggregate demand curve, theA) more the production possibilities cure shifts to the left. B) lower the price level.C) higher the price level.D) lower the level of endowments.

Q: The transformation of an invention into something that benefits the economy is known asA) an innovation. B) a patent. C) an externality. D) a compounder.

Q: National income is $500, corporate taxes are $20, Social Security contributions are $60, retained earnings are $10, personal taxes are $100, and transfer payments are $80. Disposable income isA) $510. B) $450. C) $410. D) $390.

Q: Which of the following would be included in the calculation of Gross Domestic Product (GDP)? A) The value of transfer payments B) The value of the sale of a used guitar C) The value of the sale of 1,000 shares of IBM stock D) The value of spending on new machinery and equipment

Q: By definition, the purchasing power of money always drops whenA) inflation occurs. B) deflation occurs.C) the economy is experiencing full employment. D) there is a presidential election year.

Q: According to New Keynesian economists,A) activist policy has little effect on real GDP.B) activist policy can be used to minimize variations in real GDP. C) fluctuations in output are primarily caused by supply shocks.D) the amount of time it takes firms to adjust prices is less than six months.

Q: The natural rate of unemployment is defined as the rate of unemployment that A) prevails in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy. B) prevails in the short-run macroeconomic equilibrium, before workers and employers have had a chance to adjust to an economic shock. C) exists due to welfare and unemployment benefits that reduce potential workersʹ incentives to find work. D) exists only during periods of recession or depression in the economy.

Q: If the economy is underutilizing its economic resources, the Fed shouldA) discourage investment spending.B) expand the money supply to increase aggregate demand.C) decrease aggregate supply.D) contract the money supply to decrease aggregate demand.

Q: When the Fed buys a U.S. bond in the open marketA) total reserves will increase. B) total reserves will decrease.C) total reserves do not change but the money supply increases. D) total reserves do not change but the money supply decreases.

Q: Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?A) Currency B) Certificates of depositC) Transaction deposits D) Travelerʹs checks

Q: When was the last year the United States had a budget surplus?A) 2009 B) 1984 C) 1993 D) 2001

Q: How might fiscal policy be used to correct a recessionary gap?A) The exchange rate would be adjusted to encourage imports. B) The exchange rate would be adjusted to discourage imports.C) Government spending would be adjusted to increase aggregate demand.D) Business operations would be regulated by the government to become more efficient.

Q: When graphing the consumption function, what purpose is served by the 45 -degree line?A) It identifies all the points at which saving and consumption spending are equal.B) It identifies all the points at which real disposable income and planned real consumption spending are equal.C) It identifies all the points at which real planned investment expenditure and real autonomous consumption spending are equal.D) It identifies all the points where real dissaving and saving are equal.

Q: Suppose the U.S. dollar gains strength against the euro (and against other major currencies). This strengthening of the dollar will cause which of the following to occur?A) The aggregate demand curve will shift to the right and the short -run aggregate supply will shift to the right.B) The aggregate demand curve will shift to the left and the short -run aggregate supply will shift to the right.C) The aggregate demand curve will shift to the right and the short -run aggregate supply will shift to the left.D) the aggregate demand curve will shift to the left and the short -run aggregate supply will shift to the left.

Q: In the classical model, an increase in aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand willA) leave wages unchanged since workers will not take a cut in pay. B) decrease wages.C) increase wages since business will be desperate for labor. D) change the price of capital.

Q: Other things being equal, along an aggregate demand curve, a higher price level is associated withA) a higher real GDP. B) a lower real GDP.C) a lower nominal GDP. D) higher income levels.

Q: Economists typically agree that the special protection given to owners of patents tends toA) reduce expenditures on research and development.B) increase expenditures on research and development. C) reduce economic growth.D) reduce productivity.

Q: Personal income taxes are the difference betweenA) national income and personal income.B) personal income and disposable personal income. C) national income and disposable personal income. D) net domestic product and personal income.

Q: The approach used in the U.S. to measure the economyʹs aggregate performance is A) national income accounting. B) to add up the value of intermediate goods. C) the total value of securities. D) to add up the total value of financial transactions, transfer payments, and secondhand goods. E) all of the above

Q: The value of your money income, in terms of buying goods and services, is referred to as your moneyʹsA) staying power. B) rigidity factor. C) purchasing power. D) transaction cost.

Q: A plot of points representing the rate of inflation and the unemployment for the United States since 1953 reveals thatA) there is an inverse relationship between the two variables.B) there does not appear to be any trade -off between the two variables. C) there is a positive relationship between the two variables.D) none of the above

Q: The natural rate of unemployment is A) zero. B) the unemployment rate when there is no structural unemployment. C) the unemployment rate when there is no structural or cyclical unemployment. D) the unemployment rate that exists in long-run equilibrium, after adjustments to all changes have occurred.

Q: Expansionary monetary policy during periods of underutilized resources can causeA) real Gross Domestic Product (GDP) to increase without an increase in the price level.B) real Gross Domestic Product (GDP) to increase with a decrease in the price level. C) real Gross Domestic Product (GDP) to increase with an increase in the price level.D) nominal Gross Domestic Product (GDP) to increase but cannot affect real Gross Domestic Product (GDP).

Q: When the Fed sells a U.S. bond in the open marketA) total reserves will increase. B) total reserves will decrease.C) total reserves do not change but the money supply increases. D) total reserves do not change but the money supply decreases.

Q: The transactions approach to measuring money stresses the role of money as aA) medium of exchange. B) unit of accounting.C) store of value. D) standard of deferred payment.

Q: Since 2001, the U.S. government budget deficitA) has been approximately equal to 10% of U.S. GDP.B) as a percentage of U.S. GDP has increased steadily each year.C) as a percentage of U.S. GDP has decreased steadily each year. D) none of the above.

Q: How might fiscal policy be used to correct an inflationary gap?A) The exchange rate would be adjusted to encourage imports.B) The exchange rate would be adjusted to discourage imports. C) The interest rate would be adjusted to encourage saving.D) Taxes would be increased to reduce aggregate demand.

Q: Use the above table. At an income of $150,A) real saving is $20. B) real dissaving is $10.C) real saving is $10. D) real dissaving is $50.

Q: Natural disasters like severe earthquakes are devastating to the economy as well as to the individuals harmed due toA) supply shocks. B) demand shocks.C) demand-pull inflation. D) demand-pull deflation.

Q: In the classical model, the aggregate supply curve A) is horizontal. B) is positively sloped. C) is consistent with the natural rate of unemployment. D) is not related to the employment rate.

Q: Suppose that along the aggregate demand curve, real GDP equals $14.2 trillion when the GDP deflator is 90. If the GDP deflator were 95, real GDP along the aggregate demand curve would equalA) less than $14.2 trillion. B) $14.2 trillion.C) more than $14.2 trillion but less than $14.8 trillion. D) more than $14.8 trillion.

Q: According to new growth theory, as technology becomes more important to growth, so doesA) human capital. B) military spending.C) increasing taxes. D) increasing trade barriers.

Q: An increase in Social Security contributions will makeA) net domestic product smaller. B) national income larger.C) national income smaller. D) personal income smaller.

Q: The measurement system used by the U.S. government to estimate national income is A) the GDP deflator. B) national income accounting. C) the sum of financial transactions, transfer payments and secondhand goods. D) the sum of consumption plus investment expenditures.