Q&A Hero

Q: Savings accounts, certificates of deposit, and bonds pay interest and stocks pay dividends. Why does anyone hold on to currency or other forms of money and lose this extra income?

Q: When government spending is equal to the tax revenues during a specific time period, this is known as aA) government budget deficit. B) government budget surplus. C) balanced budget. D) public debt.

Q: Which of the following fiscal policy actions would definitely cause an increase in the size of a recessionary gap? A) increases in taxes and cuts in government spending B) cuts in taxes C) increases in taxes and increases in government spending D) cuts in taxes and increases in government spending

Q: Use the above table. Which of the following is true if real disposable income is $150?A) APC is less than MPC. B) APC = 0.8.C) APS = 0.2. D) APS is less than MPS.

Q: An increase in aggregate demand will tend to cause which of the following?A) a deflationary gap B) a recessionary gapC) cost-push inflation D) none of the above

Q: In the classical model, A) unemployment will never exist since workers will be willing to accept lower wages and will then be able to find work. B) unemployment will never exist because employers will be willing to pay the wage rate demanded by the workers. C) wages will go up but never go down. D) full employment will never be reached.

Q: The various quantities of all final commodities demanded at various price levels, ceteris paribus, is theA) LRAS. B) production possibilities curve. C) aggregate demand curve. D) aggregate supply curve.

Q: A key idea of the new growth theory is thatA) technology is not an important determinant of economic growth. B) economic growth is not as important as leisure time growth.C) the greater the rewards for technological advances, the greater the number of technological advances.D) the rewards associated with technological advances have little to do with the actual rate of invention or innovation.

Q: One key difference between national income and net domestic product is A) net domestic product does not include income earned by the factors of production while national income does. B) net domestic product represents income that is available to individuals while national income does not. C) net domestic product includes indirect business taxes and transfers while national income does not. D) net domestic product only includes the net additions to the economyʹs stock of capital while national income does not.

Q: Which of the following occurs in the factor market?A) firms exchange goods and services for resources.B) households exchange resources for goods and services.C) households exchange money for goods and services. D) firms exchange money for resources.

Q: The statistical measure of a weighted average of prices of goods and services that firms produce and sell is known asA) the inflation rate.B) the consumer price index (CPI). C) the producer price index (PPI).D) the Gross Domestic Product (GDP) deflator.

Q: The longer is the interval between firmsʹ price adjustments, A) the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. B) the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. C) the new Keynesian aggregate supply curve will become steeper. D) the smaller the output effect of a given change in the money supply.

Q: Explain the difference between active and passive policy making.

Q: An increase in the supply of money, other things constant, A) stimulates an increase in demand for money.B) reduces the purchasing power of money.C) reduces the rate of growth of the price level.D) generates significant changes in relative prices.

Q: If the actual money multiplier equals the potential money multiplier and if the Fed wishes to reduce the money supply by $1 million when the reserve ratio is 20 percent, then the Fed shouldA) sell $200,000 of government securities. B) buy $200,000 of government securities. C) sell $500,000 of government securities. D) buy $500,000 of government securities.

Q: What is a fiduciary monetary system?

Q: When government spending is less than the tax revenues during a specific time period, this is known as aA) government budget deficit. B) government budget surplus. C) balanced budget. D) public debt.

Q: If there is a deliberate change in taxes and spending, it is calledA) a recessionary gap. B) an inflationary gap.C) discretionary fiscal policy. D) discretionary monetary policy.

Q: Use the above table. Dissaving occurs up to a disposable income level ofA) $0. B) $50. C) $100. D) $150.

Q: Other things being equal, if input prices rise in a country, then there would beA) cost-push inflation.B) demand-pull inflation. C) cost-push deflation.D) more production and a lower price level.

Q: Regarding unemployment, the classical model implies that A) unemployment always exists. B) unemployment cannot exist. C) voluntary unemployment is zero, but involuntary unemployment often is fairly high. D) only voluntary unemployment exists.

Q: The total of all planned expenditures in the entire economy isA) the open economy effect. B) LRAS.C) aggregate supply. D) aggregate demand.

Q: Which of the following are mentioned as forces of the new growth theory that influence economic growth?I. TechnologyII. ResearchIII. InnovationsA) I onlyB) I and II only C) I and III only D) II and III only E) I, II, and III

Q: The income that individuals have after personal income taxes have been paid is called A) gross domestic income. B) disposable personal income. C) personal income. D) national income.

Q: In the product market,A) businesses trade goods and services for resources.B) consumers trade resources for goods and services. C) consumers trade goods and services for resources.D) consumers trade monetary payments for goods and services.

Q: A sustained decrease in the average of all prices of goods and services in the economy is known asA) inflation. B) disinflation. C) deflation. D) hyperinflation

Q: According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate? A) fiscal policy B) firmsʹ average inflation adjusted per -unit costs of production C) oil prices D) stock prices

Q: If the Fed engages in open market sales in direct response to an increase in the rate of inflation, this is known asA) direct policy making. B) active policy making. C) passive policy making. D) fiscal policy making.

Q: Describe and explain the relationship between the price of bonds and the interest rate.

Q: If the actual money multiplier equals the potential money multiplier and if the Federal Reserve wishes to increase the money supply by $500 when the reserve ratio is 10 percent, it shouldA) sell $50 of government bonds. B) buy $50 of government bonds.C) sell $5000 of government bonds. D) buy $5000 of government bonds.

Q: What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?

Q: When government spending exceeds tax revenues during a specific time period, this is known as aA) government budget deficit. B) government budget surplus. C) balanced budget. D) public debt.

Q: Discretionary fiscal policy is so named because it A) is undertaken at the order of the nationʹs central bank. B) occurs automatically as the nationʹs level of GDP changes. C) involves specific changes in taxes and government spending undertaken by Congress and the president. D) involves secret advice given by the Council of Economic Advisers to the president.

Q: Use the above table. The autonomous consumption in this table isA) $140. B) $20. C) $0. D) $50.

Q: Suppose the Federal Reserve increases the money supply. Which of the following will tend to occur as a result of this policy in a Keynesian model?A) an inflationary gapB) demand-pull inflationC) a movement along the short -run aggregate supply curveD) all of the above

Q: At higher rates of interest, A) households save less because it is more expensive to save. B) households save more because they get a greater return on their savings. C) businesses demand more investment because future profitability is likely to be greater. D) businesses demand more investment because there are more funds available to invest.

Q: The aggregate demand curve gives theA) planned purchases for all goods and services in the economy, holding other things such as the price level constant.B) planned purchase rates for all goods and services in the economy at various price levels. C) demand for goods and services by the government at various price levels.D) amount of all goods everyone wants to buy at various income levels.

Q: Proponents of the new growth theory argue that which of the following is a determinant of economic growth? A) An effective system of patent protection B) The quality and size of the nationʹs educational system C) The proportion of income that goes into research and development D) all of the above.

Q: Income received by the factors of production is calledA) gross domestic income. B) disposable personal income. C) personal income. D) national income.

Q: In the simple circular flow, A) businesses trade goods and services for resources in the product market. B) consumers trade resources for goods and services in the factor market. C) consumers trade goods and services for monetary payments in the factor market. D) producers trade goods and services for monetary payments in the product market.

Q: A major element of the concepts of inflation and deflation is A) the idea that price changes are measured daily. B) their dependence on average rather than individual prices. C) the requirement that ALL prices must be moving in the same direction. D) each householdʹs willingness to report what they pay for goods and services each month.

Q: According to New Keynesians, which of the following is one of the two key factors that determines the inflation rate?A) anticipated future inflation B) fiscal policyC) oil prices D) stock prices

Q: If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known asA) direct policy making. B) active policy making. C) passive policy making. D) fiscal policy making.

Q: What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

Q: A sale of securities by the Fed causesA) a contraction of the money supply equal to the amount of the securities sold. B) an expansion of the money supply equal to the amount of the securities sold.C) a multiple expansion of the money supply greater than the amount of the securities sold. D) a multiple contraction of the money supply greater than the amount of the securities sold.

Q: A fiduciary monetary system is dependent onA) acceptability and predictability of value. B) precious metals backing fiat money.C) Congressional monetary support. D) a negative inflation rate.

Q: While the budget deficit represents a , the public debt represents a .A) flow; flow B) flow; stock C) stock; stock D) stock; flow

Q: The changing of government expenditures or taxes to achieve national economic goals isA) discretionary fiscal policy. B) automatic fiscal policy. C) recessionary fiscal policy. D) inflationary fiscal policy.

Q: Dissaving occurs whenA) households deposit unusually large amounts of money into their savings account. B) households reduce their planned monthly saving.C) consumption spending exceeds real disposable income. D) the average saving rate for the nation unexpectedly falls.

Q: If the price level should increase in the near term due to decreases in the short-run aggregate supply, the result would beA) demand-pull inflation. B) demand-pull recession. C) cost-push inflation. D) cost-pull expansion.

Q: Which of the following statements is true?A) There is a direct relationship between investment and the interest rate.B) There is an inverse relationship between investment and the interest rate. C) There is no relationship between investment and the interest rate.D) Investment is always less than savings.

Q: The interest rate effect suggests that A) an increase in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending. B) an increase in the price level increases the interest rate, which causes businesses and consumers to reduce desired spending. C) a decrease in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending. D) an increase in the price level increases the money supply, which causes businesses and consumers to increase desired spending.

Q: Why are economic growth and saving related?

Q: Which of the following accurately describes represents income earned by all factors of production?A) National Income B) Personal IncomeC) Disposable Personal Income D) Wages and salaries

Q: Which of the following would most likely be defined as a final good or service?A) iron ore B) wheatC) a personal computer D) lumber

Q: What is meant by full employment? Why isnʹt the full employment rate zero? What causes frictional unemployment?

Q: Economists Milton Friedman and E.S. Phelps suggested that the apparent trade -off suggested by the Phillips curve could not be exploited by policy makers, because A) economic participants routinely incorporate changes in the inflation rate into their expectations. B) economic participants are not rational, and therefore act unpredictably to any policy change. C) unemployment levels and the inflation rate have a clear, positive relationship. D) unemployment levels and the inflation rate have a negative (inverse) relationship.

Q: The idea of policy making being undertaken as a response to a change in the economy is referred to asA) active policy making. B) non-discretionary policy making. C) passive policy making. D) Keynesianism.

Q: The Federal Open Market Committee engages in contractionary monetary policy byA) lowering interest rates. B) creating excess reserves. C) selling bonds. D) buying bonds.

Q: The initial impact of the Fedʹs open market sale of government securities by the Federal Reserve isA) an increase in the money supply by some multiple of the dollar volume of the sale. B) an increase in commercial bank deposits at the Fed.C) a fall in the money supply by some multiple of the dollar volume of the sale. D) a reduction of the commercial banking systemʹs reserve deposits at the Fed.

Q: Stock market price quotations are an example of money serving as aA) store of value. B) medium of exchange.C) unit of accounting. D) economic value.

Q: If the government has a spending flow that exceeds the revenues it collects, the government will run a that year.A) debt B) deficitC) debt and a deficit D) surplus

Q: Fiscal policyA) uses the tools of taxation and spending in an effort to address inflation and unemployment.B) uses the tool of business regulation to increase economic efficiency.C) uses the tool of interest rates to stimulate private savings. D) uses the tool of the exchange rate to discourage imports.

Q: The slope of the saving function is theA) MPC. B) APC. C) MPS. D) APS.

Q: Demand-pull inflation occursA) when the aggregate supply curve shifts to the left, while aggregate demand remains stable.B) when the aggregate supply curve shifts to the right, while aggregate demand remains stable.C) when the aggregate demand curve shifts to the left, while aggregate supply remains stable.D) when the aggregate demand curve shifts to the right, while aggregate supply remains stable.

Q: Saving is not a problem in the classical model because A) the classical economists assume that saving was beneficial to people for retirement. B) saving would be spent by consumers eventually. C) interest rates are flexible, and savings were channeled into investment. D) savers and investors are the same people.

Q: The open economy effect suggests thatA) a decrease in domestic price level will cause foreign residents to buy fewer domestic goods, increasing net exports .B) a decrease in domestic price level will cause foreign residents to buy more domestic goods, increasing net exports.C) a rise in domestic price level will cause foreign residents to buy more domestic goods.D) a rise in domestic price level will cause domestic residents to buy fewer imported goods.

Q: In order for a nation to be able to consume more in the future, it needs to A) consume less today in aggregate and save the difference between consumption and income. B) consume more today in aggregate and borrow the difference between consumption and income. C) produce more today in aggregate and save the difference between consumption and production. D) produce less today in aggregate and save the difference between consumption and income.

Q: Income earned by the factors of production is calledA) gross domestic income. B) disposable personal income.C) personal income. D) national income.

Q: In the simple circular flow model, total income in the United States must equal A) wages + rents + interest + profits. B) the total monetary value of all final goods and services. C) the yearly amount earned by our nationʹs resources. D) All of the above are correct.

Q: The level of unemployment that is equal to the frictional and structural rate in the long run is sometimes referred to asA) cyclical employment. B) the natural rate of unemployment. C) the total rate of unemployment. D) the zero unemployment rate.

Q: The stagflation experienced in the U.S. during the late 1960s and the 1970s showed us thatA) the Phillips curve accurately represents the trade-off between unemployment and inflation.B) both inflation and economic expansion could exist simultaneously.C) the relationship between unemployment and inflation was not as clear -cut as presented on the Phillips curve.D) it is possible to alleviate economic stagflation through the government discretionary fiscal policy.

Q: The idea of policy making taking place in response to a predetermined set of rules is referred to asA) active policy making. B) discretionary policy making. C) passive policy making. D) Keynesianism.

Q: Suppose the Fed conducts an open market purchase of bonds. This monetary policy action will tend to causeA) the price of bonds to increase, and the interest rate to increase. B) the price of bonds to increase, and the interest rate to decrease. C) the price of bonds to decrease, and the interest rate to increase. D) the price of bonds to decrease, and the interest rate to decrease.

Q: Open market operations are conducted by the FedA) in the private secondary U.S. securities market.B) in the New York Stock Exchange. C) through the Bureau of Engraving.D) through the Washington location of the Federal Reserveʹs Bank of Governors.

Q: United States coins and currency are backed by A) silver. B) gold. C) reserves of foreign currencies. D) confidence that they will retain their value.

Q: A government budget surplus occurs during a budget year whenA) tax revenues > government spending. B) tax revenues = government spending. C) tax revenues < government spending.D) tax revenues + government spending = personal income.

Q: Suppose the economy has a high level of unemployment. This would implyA) that the government should engage in expansionary fiscal policy and increase the tax rate.B) that the economy is operating to the left of the LRAS curve and that government spending could be increased to reduce unemployment.C) that fiscal policy has been ineffective and should be abandoned.D) that the economy is operating on the SRAS curve and that government spending could be decreased to reduce unemployment.

Q: The slope of the consumption function is theA) MPC. B) APC. C) APS. D) MPS.

Q: Cost-push inflation occursA) when the aggregate supply curve shifts to the left, while aggregate demand remains stable.B) when the aggregate supply curve shifts to the right, while aggregate demand remains stable.C) when the aggregate demand curve shifts to the left, while aggregate supply remains stable.D) when the aggregate demand curve shifts to the right, while aggregate supply remains stable.