Study Guide For Study Guide For Macroeconomics FinalMacroeconomics Final

Dr. Frank JacobsonDr. Frank Jacobson

For an economy, expenditure is equal to For an economy, expenditure is equal to income because:income because:

a. By law firms must pay out all their a. By law firms must pay out all their revenue as income to someone.revenue as income to someone.b. For every sale there is a buyer and a seller.b. For every sale there is a buyer and a seller.c. Prices of individual goods and services c. Prices of individual goods and services change, but the average price level stays the change, but the average price level stays the same.same.d. None of the above is correct; expenditure d. None of the above is correct; expenditure is is notnot always equal to income for an economy. always equal to income for an economy.

GDP is defined as the market value of all final GDP is defined as the market value of all final goods and services produced:goods and services produced:

a. By the citizens of a country, regardless of where a. By the citizens of a country, regardless of where they live, in a given period of time; this definition they live, in a given period of time; this definition focuses on GDP as a measure of total income.focuses on GDP as a measure of total income.b. By the citizens of a country, regardless of where b. By the citizens of a country, regardless of where they live, in a given period of time; this definition they live, in a given period of time; this definition focuses on GDP as a measure of total expenditure.focuses on GDP as a measure of total expenditure.c. Within a country in a given period of time; this c. Within a country in a given period of time; this definition focuses on GDP as a measure of total definition focuses on GDP as a measure of total income.income.d. Within a country in a given period of time; this d. Within a country in a given period of time; this definition focuses on GDP as a measure of total definition focuses on GDP as a measure of total expenditure.expenditure.

Which of the following statements is correct?Which of the following statements is correct?

a. The value of all intermediate goods and final a. The value of all intermediate goods and final goods is included in GDP.goods is included in GDP.b. The value of intermediate goods is included in b. The value of intermediate goods is included in GDP only if those goods were produced in the GDP only if those goods were produced in the previous year.previous year.c. The value of intermediate goods is included in c. The value of intermediate goods is included in GDP only if those goods are added to firms’ GDP only if those goods are added to firms’ inventories to be used or sold at a later date.inventories to be used or sold at a later date.d. The value of intermediate goods is never d. The value of intermediate goods is never included in GDP.included in GDP.

U.S. GDP and U.S. GNP are related as U.S. GDP and U.S. GNP are related as follows:follows:

a. GNP = GDP - Income earned by a. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.U.S. citizens abroad.b. GNP = GDP + Income earned by b. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. foreigners in the U.S. - Income earned by U.S. citizens abroad.citizens abroad.c. GNP = GDP + Value of exported goods - c. GNP = GDP + Value of exported goods - Value of imported goods.Value of imported goods.d. GNP = GDP - Value of exported goods + d. GNP = GDP - Value of exported goods + Value of imported goods.Value of imported goods.

Unlike national income, personal income:Unlike national income, personal income:

a. Includes retained earnings, corporate income taxes and a. Includes retained earnings, corporate income taxes and social insurance contributions, and excludes interest and social insurance contributions, and excludes interest and transfer payments received by households from transfer payments received by households from government.government.b. Excludes retained earnings, corporate income taxes, b. Excludes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer social insurance contributions, and interest and transfer payments received by households from government.payments received by households from government.c. Excludes retained earnings, corporate income taxes and c. Excludes retained earnings, corporate income taxes and social insurance contributions, and includes interest and social insurance contributions, and includes interest and transfer payments received by households from transfer payments received by households from government.government.d. Includes retained earnings, corporate income taxes, d. Includes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer social insurance contributions, and interest and transfer payments received by households from government.payments received by households from government.

Which of the following represents a Which of the following represents a transfer payment?transfer payment?

a. You transfer $1,000 from your bank a. You transfer $1,000 from your bank account to a mutual fund.account to a mutual fund.b. The government sends your grandfather b. The government sends your grandfather his Social Security check.his Social Security check.c. The bank transfers $10 in quarterly c. The bank transfers $10 in quarterly interest to your savings account.interest to your savings account.d. Your employer automatically transfers d. Your employer automatically transfers $100 each month from your wages to a non-$100 each month from your wages to a non-taxable medical spending account.taxable medical spending account.

Economists use the term Economists use the term inflationinflation to to describe a situation in which:describe a situation in which:

a. Some prices are rising faster than a. Some prices are rising faster than others.others.b. The economy's overall price level is b. The economy's overall price level is rising.rising.c. The economy's overall price level is c. The economy's overall price level is high, but not necessarily rising.high, but not necessarily rising.d. The economy's overall output of d. The economy's overall output of goods and services is rising faster than goods and services is rising faster than the economy's overall price level.the economy's overall price level.

The economy's The economy's inflation rateinflation rate is the: is the:

a. Price level in the current period.a. Price level in the current period.b. Change in the price level from the b. Change in the price level from the previous period.previous period.c. Change in the gross domestic c. Change in the gross domestic product from the previous period.product from the previous period.d. Percentage change in the price d. Percentage change in the price level from the previous period.level from the previous period.

In the calculation of the CPI, coffee is In the calculation of the CPI, coffee is given greater weight than tea if:given greater weight than tea if:

a. Consumers buy more coffee than tea.a. Consumers buy more coffee than tea.b. The price of coffee is higher than the b. The price of coffee is higher than the price of tea.price of tea.c. It costs more to produce coffee than it c. It costs more to produce coffee than it costs to produce tea.costs to produce tea.d. Coffee is more readily available than d. Coffee is more readily available than is tea to the typical consumer.is tea to the typical consumer.

Which is the most accurate statement about the GDP Which is the most accurate statement about the GDP deflator and the consumer price index?deflator and the consumer price index?

a. The GDP deflator compares the price of a fixed basket of goods a. The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the goods and services to the price of the same goods and services in the base year.base year.b. The consumer price index compares the price of a fixed basket of b. The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the goods and services to the price of the same goods and services in the base year.base year.c. Both the GDP deflator and the consumer price index compare the c. Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the price of a fixed basket of goods and services to the price of the basket in the base year.basket in the base year.

d. Both the GDPd. Both the GDP deflator and the consumer price index compare deflator and the consumer price index compare the price of currently produced goods and services to the price of the the price of currently produced goods and services to the price of the same goods and services in the base year.same goods and services in the base year.

The basket of goods in the consumer price The basket of goods in the consumer price index changes:index changes:

a. Occasionally, as does the group of goods used to a. Occasionally, as does the group of goods used to compute the GDP deflator.compute the GDP deflator.b. Automatically, as does the group of goods used b. Automatically, as does the group of goods used to compute the GDP deflator.to compute the GDP deflator.c. Occasionally, whereas the group of goods used c. Occasionally, whereas the group of goods used to compute the GDP deflator changes to compute the GDP deflator changes automatically.automatically.d. Automatically, whereas the group of goods used d. Automatically, whereas the group of goods used

to compute the GDP deflator changes occasionallyto compute the GDP deflator changes occasionally ..

A nation's standard of living is A nation's standard of living is measured by its:measured by its:

a. Real GDP.a. Real GDP.b. Real GDP per person.b. Real GDP per person.c. Nominal GDP.c. Nominal GDP.d. Nominal GDP per person.d. Nominal GDP per person.

Productivity:Productivity:

a. a. Is nearly the same across countries, and so Is nearly the same across countries, and so provides no help explaining differences in the provides no help explaining differences in the standard of living across countries.standard of living across countries.b. Explains very little of the differences in b. Explains very little of the differences in the standard of living across countries.the standard of living across countries.c. Explains some, but not most of the c. Explains some, but not most of the differences in the standard of living across differences in the standard of living across countries.countries.d. Explains most of the differences in the d. Explains most of the differences in the standard of living across countries.standard of living across countries.

Which of the following is true?Which of the following is true?

a. Productivity is hours worked divided by a. Productivity is hours worked divided by output produced.output produced.b. Americans have a higher standard of b. Americans have a higher standard of living than Indonesians because American living than Indonesians because American workers are more productive than workers are more productive than Indonesian workers.Indonesian workers.c. Trends in the market prices of most c. Trends in the market prices of most resources indicate that they have become resources indicate that they have become increasingly scarce over time.increasingly scarce over time.d. All of the above are correct.d. All of the above are correct.

The saws, lathes, and drill presses The saws, lathes, and drill presses that woodworkers at Cedar Valley that woodworkers at Cedar Valley Furniture use to produce furniture Furniture use to produce furniture are called:are called:

a. Human capital.a. Human capital.b. Physical capital.b. Physical capital.c. Natural resources.c. Natural resources.d. Technological knowledge.d. Technological knowledge.

Which of the following is considered Which of the following is considered human capital?human capital?

a. Knowledge acquired from early a. Knowledge acquired from early childhood education programs.childhood education programs.b. Knowledge acquired from grade b. Knowledge acquired from grade school.school.c. Knowledge acquired from on-the-c. Knowledge acquired from on-the-job training.job training.d. All of the above are correct.d. All of the above are correct.

In a market economy, the real, or In a market economy, the real, or inflation adjusted, price of a resource inflation adjusted, price of a resource measures its:measures its:

a. Contribution to revenue.a. Contribution to revenue.b. Relative scarcity.b. Relative scarcity.c. Productivity.c. Productivity.d. Contribution to efficiency.d. Contribution to efficiency.

Technological knowledge refers to:Technological knowledge refers to:

a. Human capital.a. Human capital.b. Available information on how to b. Available information on how to produce things.produce things.c. Resources expended transmitting c. Resources expended transmitting society's understanding to the labor society's understanding to the labor force.force.d. All of the above are technological d. All of the above are technological knowledge.knowledge.

If there are diminishing returns to If there are diminishing returns to capital, then:capital, then:

a. Capital produces fewer goods as it a. Capital produces fewer goods as it ages.ages.b. Old ideas are not as useful as new b. Old ideas are not as useful as new ones.ones.c. Increases in the capital stock c. Increases in the capital stock eventually decrease output.eventually decrease output.d. Increases in the capital stock increase d. Increases in the capital stock increase output by ever smaller amounts.output by ever smaller amounts.

If a country's saving rate If a country's saving rate increases, then in the long run:increases, then in the long run:

a. Both productivity growth and a. Both productivity growth and income growth increase.income growth increase.b. Only productivity growth b. Only productivity growth increases.increases.c. Only income growth increases.c. Only income growth increases.d. Neither productivity growth nor d. Neither productivity growth nor income growth increase.income growth increase.

A bond is a:A bond is a:

a. Financial intermediary.a. Financial intermediary.b. Certificate of indebtedness.b. Certificate of indebtedness.c. Certificate of partial ownership in c. Certificate of partial ownership in an enterprise.an enterprise.d. None of the above is correct.d. None of the above is correct.

Compared to long-term bonds, other Compared to long-term bonds, other things the same, short-term bonds things the same, short-term bonds generally have:generally have:

a. More risk and so pay higher interest.a. More risk and so pay higher interest.b. Less risk and so pay lower interest.b. Less risk and so pay lower interest.c. Less risk and so pay higher interest.c. Less risk and so pay higher interest.d. About the same risk and so pay about d. About the same risk and so pay about the same interest.the same interest.

Other things the same, as the maturity of Other things the same, as the maturity of a bond becomes longer, the bond will a bond becomes longer, the bond will pay:pay:

a. Less interest because it has less risk.a. Less interest because it has less risk.b. Less interest because it has more risk.b. Less interest because it has more risk.c. More interest because it has more c. More interest because it has more risk.risk.d. There is no relation between term to d. There is no relation between term to maturity and risk.maturity and risk.

People who buy stock in a corporation such as People who buy stock in a corporation such as General Electric become:General Electric become:

a. Creditors of General Electric, so the benefits of a. Creditors of General Electric, so the benefits of holding the stock depend on General Electric's holding the stock depend on General Electric's profits.profits.b. Creditors of General Electric, but the benefits of b. Creditors of General Electric, but the benefits of holding the stock do not depend on General holding the stock do not depend on General Electric's profits.Electric's profits.c. Part owners of General Electric, so the benefits c. Part owners of General Electric, so the benefits of holding the stock depend on General Electric's of holding the stock depend on General Electric's profits.profits.d. Part owners of General Electric, but the benefits d. Part owners of General Electric, but the benefits of holding the stock do not depend on General of holding the stock do not depend on General Electric's profits.Electric's profits.

Profits paid out to stockholders are:Profits paid out to stockholders are:

a. Retained earnings.a. Retained earnings.b. Dividends.b. Dividends.c. The denominator in the price-c. The denominator in the price-earnings ratio.earnings ratio.d. All of the above are correct.d. All of the above are correct.

Which of the following equations Which of the following equations most simply represents GDP in a most simply represents GDP in a closed economy?closed economy?

a. a. YY = = CC + + II + + GG + + NXNXb. b. SS = = II – – GGc. c. II = = YY - - CC + + GGd. d. YY = = CC + + II + + GG

In a closed economy, national saving In a closed economy, national saving equals:equals:

a. Investment.a. Investment.b. Income minus the sum of b. Income minus the sum of consumption and government consumption and government purchases.purchases.c. Private saving plus public saving.c. Private saving plus public saving.d. All of the above are correct.d. All of the above are correct.

A budget surplus is created if:A budget surplus is created if:

a. The government sells more bonds a. The government sells more bonds than it buys back.than it buys back.b. The government spends more b. The government spends more than it receives in tax revenue.than it receives in tax revenue.c. Private saving is greater than c. Private saving is greater than zero.zero.d. None of the above is correct.d. None of the above is correct.

Other things the same, when the interest Other things the same, when the interest rate rises:rate rises:

a. People would want to lend more, making a. People would want to lend more, making the supply of loanable funds increase.the supply of loanable funds increase.b. People would want to lend less, making the b. People would want to lend less, making the supply of loanable funds decrease.supply of loanable funds decrease.c. People would want to lend more, making c. People would want to lend more, making the quantity of loanable funds supplied the quantity of loanable funds supplied increase.increase.d. People would want to lend less, making the d. People would want to lend less, making the quantity of loanable funds supplied decrease.quantity of loanable funds supplied decrease.

If the nominal interest rate is 10 If the nominal interest rate is 10 percent and the inflation rate is 4 percent and the inflation rate is 4 percent, then the real interest rate is:percent, then the real interest rate is:

a. 14 percent.a. 14 percent.b. 6 percent.b. 6 percent.c. 2.5 percent.c. 2.5 percent.d. .4 percent.d. .4 percent.

Cyclical unemployment refers to:Cyclical unemployment refers to:

a. The relation between the probability a. The relation between the probability of unemployment and a worker's of unemployment and a worker's changing level of experience.changing level of experience.b. How often a worker is likely to be b. How often a worker is likely to be employed during her lifetime.employed during her lifetime.c. Year-to-year fluctuations of c. Year-to-year fluctuations of unemployment around its natural rate.unemployment around its natural rate.d. Long-term trends in unemployment.d. Long-term trends in unemployment.

The natural rate of unemployment is The natural rate of unemployment is the economist's notion of:the economist's notion of:

a. Full employment.a. Full employment.b. Cyclical employment.b. Cyclical employment.c. Structural unemployment.c. Structural unemployment.d. Frictional unemployment.d. Frictional unemployment.

Unemployment data is collected:Unemployment data is collected:

a. From unemployment insurance a. From unemployment insurance claims.claims.b. Through a regular survey of b. Through a regular survey of about 60,000 households.about 60,000 households.c. Through a regular survey of about c. Through a regular survey of about 200,000 firms.200,000 firms.d. Unemployment data is collected d. Unemployment data is collected using all of the above.using all of the above.

The labor force:The labor force:

a. Equals the number of people employed.a. Equals the number of people employed.b. Equals the number of people employed b. Equals the number of people employed plus the number of people unemployed.plus the number of people unemployed.c. Equals the non-institutionalized adult c. Equals the non-institutionalized adult population.population.d. Equals the number of people employed d. Equals the number of people employed plus the number of people cyclically plus the number of people cyclically unemployed.unemployed.

Which of the following definitions is Which of the following definitions is correct?correct?

a. Labor force = number of employed.a. Labor force = number of employed.b. Labor force = population - number of b. Labor force = population - number of unemployed.unemployed.c. Unemployment Rate = (number of c. Unemployment Rate = (number of unemployed [number of employed + unemployed [number of employed + number of unemployed]) 100.number of unemployed]) 100.d. Unemployment Rate = (number of d. Unemployment Rate = (number of unemployed adult population) 100.unemployed adult population) 100.

The labor-force participation rates among U.S. The labor-force participation rates among U.S. men since World War II:men since World War II:

a. Decreased because of longer schooling, an increase in a. Decreased because of longer schooling, an increase in stay-at-home dads, earlier retirement, and longer lives.stay-at-home dads, earlier retirement, and longer lives.b. Decreased because of longer lives, laws that prevent b. Decreased because of longer lives, laws that prevent mandatory retirement, and an increase in stay-at-home mandatory retirement, and an increase in stay-at-home dads.dads.c. Increased because of better unemployment insurance, c. Increased because of better unemployment insurance, laws that prevent mandatory retirement, and laws that laws that prevent mandatory retirement, and laws that prevent age discrimination in hiring.prevent age discrimination in hiring.d. Increased because of easier job searches, better d. Increased because of easier job searches, better training, and laws that prevent mandatory retirement and training, and laws that prevent mandatory retirement and age discrimination in hiring.age discrimination in hiring.

Since 1950, the labor-force participation Since 1950, the labor-force participation rate of women has:rate of women has:

a. Increased. This can be attributed to a. Increased. This can be attributed to longer lives.longer lives.b. Increased. This can be attributed b. Increased. This can be attributed partly to advances in birth control.partly to advances in birth control.c. Decreased. This can be attributed c. Decreased. This can be attributed partly to longer schooling.partly to longer schooling.d. Decreased. This can be attributed d. Decreased. This can be attributed partly to increases in the minimum wage.partly to increases in the minimum wage.

Evidence from research studies by Evidence from research studies by economists:economists: a. Show that increased unemployment benefits a. Show that increased unemployment benefits decrease the job-search efforts of the unemployed.decrease the job-search efforts of the unemployed.b. Show that increased unemployment benefits b. Show that increased unemployment benefits have virtually no effect on the job-search efforts of have virtually no effect on the job-search efforts of the unemployed.the unemployed.c. Show that increased unemployment benefits c. Show that increased unemployment benefits increases the job-search effort of the unemployed.increases the job-search effort of the unemployed.d. Find no clear-cut evidence on what increased d. Find no clear-cut evidence on what increased unemployment benefits do to job-search efforts.unemployment benefits do to job-search efforts.

If the minimum wage were currently above If the minimum wage were currently above the equilibrium wage, than a decrease in the the equilibrium wage, than a decrease in the minimum wage would:minimum wage would:

a. Increase both the quantity demanded and a. Increase both the quantity demanded and the quantity supplied of labor.the quantity supplied of labor.b. Decrease both the quantity demanded and b. Decrease both the quantity demanded and the quantity supplied of labor.the quantity supplied of labor.c. Increase the quantity of labor demanded c. Increase the quantity of labor demanded and decrease the quantity supplied.and decrease the quantity supplied.d. Decrease the quantity of labor demanded d. Decrease the quantity of labor demanded and increase the quantity supplied.and increase the quantity supplied.

Mia puts money into a piggy bank so Mia puts money into a piggy bank so she can spend it later. What function she can spend it later. What function of money does this illustrate?of money does this illustrate?

a. Store of value.a. Store of value.b. Medium of exchange.b. Medium of exchange.c. Unit of account.c. Unit of account.d. None of the above is correct.d. None of the above is correct.

An item that people can use to An item that people can use to transfer purchasing power from the transfer purchasing power from the present to the future is called:present to the future is called:

a. A medium of exchange.a. A medium of exchange.b. A unit of account.b. A unit of account.c. A store of value.c. A store of value.d. None of the above is correct.d. None of the above is correct.

Current U.S. currency is:Current U.S. currency is:

a. Fiat money with intrinsic value.a. Fiat money with intrinsic value.b. Fiat money with no intrinsic b. Fiat money with no intrinsic value.value.c. Commodity money with intrinsic c. Commodity money with intrinsic value.value.d. Commodity money with no d. Commodity money with no intrinsic value.intrinsic value.

If an economy used gold as money, If an economy used gold as money, its money would be:its money would be:

a. Commodity money, but not fiat a. Commodity money, but not fiat money.money.b. Fiat money, but not commodity b. Fiat money, but not commodity money.money.c. Both fiat and commodity money.c. Both fiat and commodity money.d. Neither fiat nor commodity d. Neither fiat nor commodity money.money.

Which of the following is not Which of the following is not included in M1?included in M1?

a. Currency.a. Currency.b. Demand deposits.b. Demand deposits.c. Savings deposits.c. Savings deposits.d. Travelers' checks.d. Travelers' checks.

Which of the following is included in Which of the following is included in the M2 definition of the money the M2 definition of the money supply?supply?

a. Credit cards.a. Credit cards.b. Money market mutual funds.b. Money market mutual funds.c. Corporate bonds.c. Corporate bonds.d. Large time deposits.d. Large time deposits.

Debit cards:Debit cards:

a. Defer payments.a. Defer payments.b. Are equivalent to credit cards.b. Are equivalent to credit cards.c. Are included in M2.c. Are included in M2.d. Are used as a method of payment.d. Are used as a method of payment.

Each Federal Reserve District Bank Each Federal Reserve District Bank president is appointed by:president is appointed by:

a. The US president with the a. The US president with the approval of the Senate.approval of the Senate.b. The Board of Governors.b. The Board of Governors.c. The voting members of the c. The voting members of the FOMC.FOMC.d. Each bank's board of directors.d. Each bank's board of directors.

Which of the following is correct?Which of the following is correct?

a. The Federal Reserve has 14 regional banks. The a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-Board of Governors has 12 members who serve 7-year terms.year terms.b. The Federal Reserve has 14 regional banks. The b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-Board of Governors has 7 members who serve 14-year terms.year terms.c. The Federal Reserve has 12 regional banks. The c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-Board of Governors has 12 members who serve 7-year terms.year terms.d. The Federal Reserve has 12 regional banks. The d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-Board of Governors has 7 members who serve 14-year terms.year terms.

The Fed’s primary tool to change the The Fed’s primary tool to change the money supply is:money supply is:

a. Changing the discount rate.a. Changing the discount rate.b. Changing the reserve b. Changing the reserve requirement.requirement.c. Conducting open market c. Conducting open market operations.operations.d. Redeeming Federal Reserve notes.d. Redeeming Federal Reserve notes.

Suppose that the reserve ratio is 5 Suppose that the reserve ratio is 5 percent and that a bank has $1,000 in percent and that a bank has $1,000 in deposits. Its reserves are:deposits. Its reserves are:

a. $5.a. $5.b. $50.b. $50.c. $95.c. $95.d. $950.d. $950.

If the reserve ratio is 10 percent, the If the reserve ratio is 10 percent, the money multiplier is:money multiplier is:

a. 100.a. 100.b. 10.b. 10.c. 9/10.c. 9/10.d. 1/10.d. 1/10.

The multiplier equals:The multiplier equals:

a. 1/Ra. 1/Rb. 1/(1+R)b. 1/(1+R)c. 1/(1-R)c. 1/(1-R)d. None of the above is correct.d. None of the above is correct.

Which of the following lists two things Which of the following lists two things that both increase the money supply?that both increase the money supply?

a. Make open market purchases, raise a. Make open market purchases, raise the reserve requirement ratio.the reserve requirement ratio.b. Make open market purchases, lower b. Make open market purchases, lower the reserve requirement ratio.the reserve requirement ratio.c. Make open market sales, raise the c. Make open market sales, raise the reserve requirement ratio.reserve requirement ratio.d. Make open market sales, lower the d. Make open market sales, lower the reserve requirement ratio.reserve requirement ratio.

Over the last 70 years the average annual Over the last 70 years the average annual U.S. inflation rate was about:U.S. inflation rate was about:

a. 2 percent implying that prices have a. 2 percent implying that prices have increased 10-fold.increased 10-fold.b. 4 percent implying that prices have b. 4 percent implying that prices have increased 10-fold.increased 10-fold.c. 2 percent implying that prices have c. 2 percent implying that prices have increased 16-fold.increased 16-fold.d. 4 percent implying that prices d. 4 percent implying that prices increased about 16-fold.increased about 16-fold.

When prices are falling, economists When prices are falling, economists say that there is:say that there is:

a. Disinflation.a. Disinflation.b. Deflation.b. Deflation.c. A contraction.c. A contraction.d. An inverted inflation.d. An inverted inflation.

The supply curve of money is vertical The supply curve of money is vertical because the quantity of money supplied because the quantity of money supplied increases:increases:

a. When the value of money increases.a. When the value of money increases.b. When the value of money decreases.b. When the value of money decreases.c. Only if people desire to hold more c. Only if people desire to hold more money.money.d. Only if the central bank increases the d. Only if the central bank increases the money supply.money supply.

The supply of money increases when:The supply of money increases when:

a. The value of money increases.a. The value of money increases.b. The interest rate increases.b. The interest rate increases.c. The Fed makes open-market c. The Fed makes open-market purchases.purchases.d. None of the above is correct.d. None of the above is correct.

Open-market purchases by the Fed make Open-market purchases by the Fed make the money supply:the money supply:

a. Increase, which makes the value of a. Increase, which makes the value of money increase.money increase.b. Increase, which makes the value of b. Increase, which makes the value of money decrease.money decrease.c. Decrease, which makes the value of c. Decrease, which makes the value of money decrease.money decrease.d. Decrease, which makes the value of d. Decrease, which makes the value of money increase.money increase.

Economic variables whose values are Economic variables whose values are measured in monetary units are measured in monetary units are called:called:

a. Dichotomous variables.a. Dichotomous variables.b. Nominal variables.b. Nominal variables.c. Classical variables.c. Classical variables.d. Real variables.d. Real variables.

Economic variables whose values are Economic variables whose values are measured in goods are called:measured in goods are called:

a. Dichotomous variables.a. Dichotomous variables.b. Nominal variables.b. Nominal variables.c. Classical variables.c. Classical variables.d. Real variables.d. Real variables.

According to the classical dichotomy, According to the classical dichotomy, which of the following is which of the following is notnot influenced by monetary factors?influenced by monetary factors?

a. The price level.a. The price level.b. Real GDP.b. Real GDP.c. Nominal interest rates.c. Nominal interest rates.d. All of the above are correct.d. All of the above are correct.

According to the principle of According to the principle of monetary neutrality, a decrease in monetary neutrality, a decrease in the money supply will not change:the money supply will not change:

a. Nominal GDP.a. Nominal GDP.b. The price level.b. The price level.c. Unemployment.c. Unemployment.d. All of the above are correct.d. All of the above are correct.

Governments may prefer an inflation Governments may prefer an inflation tax to some other kind of tax because tax to some other kind of tax because the inflation tax:the inflation tax:

a. Is easier to impose.a. Is easier to impose.b. Reduces inflation.b. Reduces inflation.c. Falls mainly on high-income c. Falls mainly on high-income individuals.individuals.d. Reduces the real cost of d. Reduces the real cost of government expenditure.government expenditure.

Printing money to finance Printing money to finance government expenditures:government expenditures:

a. Causes the value of money to rise.a. Causes the value of money to rise.b. Imposes a tax on everyone who b. Imposes a tax on everyone who holds money.holds money.c. Is the principle method by which c. Is the principle method by which the U.S. government finances its the U.S. government finances its expenditures.expenditures.d. None of the above is correct.d. None of the above is correct.

Under the assumptions of the Fisher Under the assumptions of the Fisher effect and monetary neutrality, if the effect and monetary neutrality, if the money supply growth rate rises, then:money supply growth rate rises, then:

a. Both the nominal and the real interest a. Both the nominal and the real interest rate rise.rate rise.b. Neither the nominal nor the real b. Neither the nominal nor the real interest rate rise.interest rate rise.c. The nominal interest rate rises, but c. The nominal interest rate rises, but the real interest rate does not.the real interest rate does not.d. The real interest rate rises, but the d. The real interest rate rises, but the nominal interest rate does not.nominal interest rate does not.

The cost of changing price tags and The cost of changing price tags and price listings is known as:price listings is known as:

a. Inflation-induced tax distortions.a. Inflation-induced tax distortions.b. Relative-price variability costs.b. Relative-price variability costs.c. Shoeleather costs.c. Shoeleather costs.d. Menu costs.d. Menu costs.

Net capital outflow measures:Net capital outflow measures:

a. Foreign assets held by domestic residents minus a. Foreign assets held by domestic residents minus domestic assets held by foreign residents.domestic assets held by foreign residents.b. The imbalance between the amount of foreign b. The imbalance between the amount of foreign assets bought by domestic residents and the assets bought by domestic residents and the amount of domestic assets bought by foreigners.amount of domestic assets bought by foreigners.c. The imbalance between the amount of foreign c. The imbalance between the amount of foreign assets bought by domestic residents and the assets bought by domestic residents and the amount of domestic goods and services sold to amount of domestic goods and services sold to foreigners.foreigners.d. None of the above is correct.d. None of the above is correct.

Which of the following is correct?Which of the following is correct?

a. a. NCONCO = = NXNXb. b. NCONCO + + II = = NXNXc. c. NXNX + + NCONCO = = YYd. d. YY = = NCONCO - - II

If a country has a trade surplus:If a country has a trade surplus:

a. It has positive net exports and a. It has positive net exports and positive net capital outflow.positive net capital outflow.b. It has positive net exports and b. It has positive net exports and negative net capital outflow.negative net capital outflow.c. It has negative net exports and c. It has negative net exports and positive net capital outflow.positive net capital outflow.d. It has negative net exports and d. It has negative net exports and negative net capital outflow.negative net capital outflow.

You are staying in London over the summer and you have You are staying in London over the summer and you have a number of dollars with you. If the dollar appreciated a number of dollars with you. If the dollar appreciated relative to the British pound then, other things the same:relative to the British pound then, other things the same:

a. The dollar would buy more pounds. The appreciation a. The dollar would buy more pounds. The appreciation would discourage you from buying as many British goods would discourage you from buying as many British goods and services.and services.b. The dollar would buy more pounds. The appreciation b. The dollar would buy more pounds. The appreciation would encourage you to buy more British goods and would encourage you to buy more British goods and services.services.c. The dollar would buy fewer pounds. The appreciation c. The dollar would buy fewer pounds. The appreciation would discourage you from buying as many British goods would discourage you from buying as many British goods and services.and services.d. The dollar would buy fewer pounds. The appreciation d. The dollar would buy fewer pounds. The appreciation would encourage you to buy more British goods and would encourage you to buy more British goods and services.services.

Purchasing-power parity theory does not Purchasing-power parity theory does not hold at all times because:hold at all times because:

a. Many goods are not easily a. Many goods are not easily transported.transported.b. The same goods produced in different b. The same goods produced in different countries may be imperfect substitutes countries may be imperfect substitutes for each other.for each other.c. Both a and b are correct.c. Both a and b are correct.d. Prices are different across countries.d. Prices are different across countries.

Which of the following statements is Which of the following statements is incorrect for an open economy?incorrect for an open economy?

a. A country can have a trade deficit, a. A country can have a trade deficit, trade surplus, or balanced trade.trade surplus, or balanced trade.b. A country that has a trade deficit has b. A country that has a trade deficit has positive net capital outflow.positive net capital outflow.c. Net exports must equal net capital c. Net exports must equal net capital outflow.outflow.d. National saving must equal domestic d. National saving must equal domestic investment plus net capital outflow.investment plus net capital outflow.

Which of the following will reduce Which of the following will reduce the price level and real output in the the price level and real output in the short run?short run?

a. An increase in the money supply.a. An increase in the money supply.b. An increase in oil prices.b. An increase in oil prices.c. A decrease in the money supply.c. A decrease in the money supply.d. Technical progress.d. Technical progress.

Refer to the Figure. The economy Refer to the Figure. The economy would be moving to long-run would be moving to long-run equilibrium if it started at:equilibrium if it started at:

a. A and moved to B.a. A and moved to B.b. C and moved to B.b. C and moved to B.c. D and moved to C.c. D and moved to C.d.None of the above is correct.d.None of the above is correct.

Suppose the economy is initially in long-Suppose the economy is initially in long-run equilibrium and aggregate demand run equilibrium and aggregate demand rises. In the long run prices:rises. In the long run prices:

a. And output are higher than in the original a. And output are higher than in the original long-run equilibrium.long-run equilibrium.b. And output are lower than in the original b. And output are lower than in the original long-run equilibrium.long-run equilibrium.c. Are higher and output is the same as the c. Are higher and output is the same as the original long-run equilibrium.original long-run equilibrium.d. Are the same and output is lower than in d. Are the same and output is lower than in the original long-run equilibriumthe original long-run equilibrium..

The Stock Market Boom of 2010The Stock Market Boom of 2010

Imagine that in 2010 the Imagine that in 2010 the economy is in long-run economy is in long-run

equilibrium. Then stock prices equilibrium. Then stock prices rise more than expected and rise more than expected and

stay high for some time.stay high for some time.

Refer to Stock Market Boom 2010. How Refer to Stock Market Boom 2010. How is the new long-run equilibrium different is the new long-run equilibrium different from the original one?from the original one?

a. The price level and real GDP are higher.a. The price level and real GDP are higher.b. The price level and real GDP are lower.b. The price level and real GDP are lower.c. The price level is higher and real GDP is c. The price level is higher and real GDP is the same.the same.d. The price level is the same and real GDP is d. The price level is the same and real GDP is higher.higher.

The Stock Market Boom of 2010The Stock Market Boom of 2010

Imagine that in 2010 the Imagine that in 2010 the economy is in long-run economy is in long-run

equilibrium. Then stock prices equilibrium. Then stock prices rise more than expected and rise more than expected and

stay high for some time.stay high for some time.

Suppose the economy is in long-run equilibrium. Suppose the economy is in long-run equilibrium. Concerns about pollution cause the government to Concerns about pollution cause the government to significantly restrict the production of electricity. significantly restrict the production of electricity. At the same time, the value of the dollar falls. In At the same time, the value of the dollar falls. In the short-run we would expect:the short-run we would expect:

a. Real GDP will rise and the price level might a. Real GDP will rise and the price level might rise, fall, or stay the same.rise, fall, or stay the same.b. Real GDP will fall and the price level might rise, b. Real GDP will fall and the price level might rise, fall, or stay the same.fall, or stay the same.c. The price level will rise, and real GDP might c. The price level will rise, and real GDP might rise, fall, or stay the same.rise, fall, or stay the same.d. The price level will fall, and real GDP might d. The price level will fall, and real GDP might rise, fall, or stay the same.rise, fall, or stay the same.

Keynes explained that recessions and Keynes explained that recessions and depressions occur because of:depressions occur because of:

a. Excess aggregate demand.a. Excess aggregate demand.b. Inadequate aggregate demand.b. Inadequate aggregate demand.c. Excess aggregate supply.c. Excess aggregate supply.d. Inadequate aggregate supply.d. Inadequate aggregate supply.

When taxes increase, consumption:When taxes increase, consumption:

a. Decreases as shown by a a. Decreases as shown by a movement to the left along a given movement to the left along a given aggregate demand curve.aggregate demand curve.b. Decreases as shown by shifting b. Decreases as shown by shifting aggregate demand to the left.aggregate demand to the left.c. Increases as shown by shifting c. Increases as shown by shifting aggregate supply the left.aggregate supply the left.d. None of the above is correct.d. None of the above is correct.

Which of the following is the most Which of the following is the most liquid asset?liquid asset?

a. Capital goods.a. Capital goods.b. Stocks and bonds with a low risk.b. Stocks and bonds with a low risk.c. Stocks and bonds with a high risk.c. Stocks and bonds with a high risk.d. Funds in a checking account.d. Funds in a checking account.

The opportunity cost of holding money:The opportunity cost of holding money:

a. Decreases when the interest rate increases, a. Decreases when the interest rate increases, so people desire to hold more of it.so people desire to hold more of it.b. Decreases when the interest rate increases, b. Decreases when the interest rate increases, so people desire to hold less of it.so people desire to hold less of it.c. Increases when the interest rate increases, c. Increases when the interest rate increases, so people desire to hold more of it.so people desire to hold more of it.d. Increases when the interest rate increases, d. Increases when the interest rate increases, so people desire to hold less of it.so people desire to hold less of it.

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