...  to save (MPS) is computed as the change in:
a. savings divided by the  ...
...  saving.
b. savings divided by the change in income.
c. saving divided by the  ...
...  in GDP.
d. None of these.

QUESTION 2

Classical  ...
...  believe that an increase in the money supply will  ...
...  to:
a. only c and d.
b. all of the following.
c. an  ...
...  in the price level.
d. an increase in nominal GDP.
e.  ...
...  in real GDP.

QUESTION 3

A decrease in aggregate demand and the subsequent cutbacks in  ...
... .
d. structural unemployment.
e. transitory unemployment.

QUESTION 4

The  ...
...  propensity to consume measures the ratio of the:
a. average amount of our  ...
...  that we spend.
b. average amount of our  ...
...  that we spend.
c. change in consumer  ...
...  to a change in money holdings.
d. change in  ...
...  spending to a change in interest rates.
e. change in  ...
...  spending to a change in income.

QUESTION 5

Classical  ...
...  traditionally believed that:
a. there are three motives for  ...
...  money.
b. a change in the money supply can affect real  ...
... .
c. the transactions demand for money influences the  ...
...  of money.
d. the velocity of money is  ...
... .
e. the economy does not always operate at full employment. ...

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...  value of child-rearing and other household  ...
...  in GDP.
a. True
b. False
Indicate whether the statement is true or false
 ...
... 
QUESTION 2

Which of the following is a range on the  ...
...  or general view of the aggregate supply curve?
a.  ...
...  range.
b. Intermediate range.
c.  ...
...  range.
d. All of these.

QUESTION 3

 ...
...  domestic product (GDP) is a satisfactory measure of both economic goods  ...
...  bads.
a. True
b. False
Indicate whether the statement is true or false
 ...
... 
QUESTION 4

Assuming prices and wages are fully flexible, the  ...
... . downward sloping.

QUESTION 5

Compensation of employees is the largest  ...
...  of GDP using the income approach.
a.  ...
... 
b. False
Indicate whether the statement is true or false
 ...
...  real GDP is below the full-employment level, then an increase in aggregate demand  ...
...  result in which of the following changes in equilibrium?
 ...
... . Real GDP will rise, but the price level will remain constant.
b. Real GDP and  ...
...  price level will both rise.
c. Real GDP will  ...
...  unchanged but the price level will rise.
d.  ...
...  of the above.

QUESTION 7

The expenditure  ...
...  measures GDP by adding the spending of households, businesses, government, and  ...
... .
a. True
b. False
Indicate whether the statement is true or  ...

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...  a country finds that its Lorenz curve is moving further away  ...
...  the diagonal, this means its income is becoming more unevenly  ...
...  over time.
a. True
b. False
Indicate whether the statement is true or false
 ...
... 
QUESTION 2

Other things remaining constant, higher trade deficits in the U.S. will  ...
...  to:
a. U.S citizens buying greater foreign securities.
b. an increase  ...
...  in the U.S.
c. a decrease in the demand for U.S. dollars.
d. an increase in  ...
...  from abroad.
e. an increase in the standard of living of  ...
...  U.S residents.

QUESTION 3

The inflation experienced in the United States  ...
...  the late 1960s as a result of the spending on  ...
...  Vietnam War is an example of:
a. hyperinflation.
b.  ...
... -pull inflation.
c. disinflation.
d. cost-push  ...
... .
e. cyclical inflation.

QUESTION 4

The U.S. Lorenz curve  ...
...  closer to the perfect equality line than in 1929.
a. True
b. False
 ...
...  whether the statement is true or false

QUESTION 5

The  ...
...  in of private investment is associated with:
 ...
...  a. a leftward shift of the aggregate demand curve for an  ...
... .
b. a leftward shift of the aggregate supply curve of an  ...
... .
c. a reduction in the level of government spending.
d. a reduction  ...
...  corporate income taxes.
e. an increase in  ...
...  demand induced by increased government  ...
... .

QUESTION 6

Suppose the price levels in an economy in four successive years  ...
...  100, 120, 133, and 140 . Which of the following is true  ...
...  a. The economy is experiencing hyperinflation.
b. The economy is experiencing  ...
... .
c. The economy is experiencing inflation.
d. The economy is experiencing  ...
...  inflation.
e. The economy is experiencing  ...

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...  of the following most clearly illustrates  ...
...  concept of derived demand?
a. An increase in the  ...
...  of steak causes the demand for poultry to  ...
... .
b. An increase in the demand for new houses  ...
...  to an increase in the demand for construction  ...
... .
c. An increase in consumer income leads to an  ...
...  in the demand for services provided by the  ...
... .
d. An increase in the demand for new cars  ...
...  the demand for used automobiles to rise.

 ...
...  a. uses the federal government's powers of spending and taxation to affect  ...
... , the price level, and GDP.
b. uses the federal  ...
... 's control over the money supply and interest rates to affect employment,  ...
...  price level, and GDP.
c. can affect employment  ...
...  prices, but not the level of GDP.
d. can affect employment and  ...
...  level of GDP, but not the price level.
e. is  ...
...  effective when employed by state governments rather than by the federal  ...
... .

QUESTION 3

If economic profit is zero, then a normal profit is  ...
... .
a. True
b. False
Indicate whether the statement is true or false
 ...
... 
QUESTION 4

Stagflation in an economy can be effectively  ...
...  by Keynesian demand management policies.
a. True
 ...
... . False
Indicate whether the statement is true or false
 ...
... 
QUESTION 5

The number of workers hired by a firm at a particular  ...
...  rate can be calculated if you know which of  ...
...  following?
a. c and d.
b. Product supply curve.
c.  ...
...  product of labor.
d. Marginal factor cost.
e.  ...
...  revenue product of labor.

QUESTION 6

Fiscal policy  ...
...  on manipulating _____.
a. aggregate demand  ...
...  smooth out business fluctuations
b. aggregate supply to smooth out  ...
...  fluctuations
c. both aggregate supply and  ...
...  demand to smooth out business fluctuations
d. ...
...  aggregate demand to stimulate the economy and  ...
...  supply to contract it
e. short-run aggregate supply to stimulate the economy and  ...
...  demand to contract it

QUESTION 7

Constant  ...
... -sloping.

QUESTION 8

Keynes believed that the best method for tackling recessions  ...
...  to reduce government spending and raise taxes, thereby reducing the  ...
...  deficit.
a. True
b. False
Indicate whether the statement is true or  ...

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...  a monopolist lowers its price and its demand is inelastic, then its

 ...
... .
C) total revenue does not change.
D) total revenue is negative.


 ...
... . 2

The change in total revenue that results from  ...
...  one more unit of labor is called the

A) wage rate.
 ...
...  B) value of marginal product of labor.
C) average  ...
... .
D) marginal product of labor.


Ques. 3

In the short run, a  ...
...  competitive firm will shut down if at the profit maximizing quantity the

 ...
... ) P < AVC.
B) AVC < ATC.
C) P > ATC.
D) P > MC.


Ques. 4

 ...
...  a firm expands its output, cost per unit of output ( ...
...  cost) decreases and then increases. Average cost and  ...
...  have

A) a relationship with a minimum.
B) a  ...
...  with a maximum.
C) no relationship.
D) a linear positive  ...
... .


Ques. 5

A decrease in short-run aggregate supply ________ the equilibrium price  ...
...  and ________ the equilibrium quantity of  ...
... ; decreases


Ques. 6

On the island country of Sunshine where the unit of  ...
...  is 250 fish, net taxes are 100 fish, and the government budget deficit is 175  ...
... . The private sector has a ________.

A) deficit  ...
...  125 fish
B) surplus of 125 fish
C) deficit of 225 fish
D)  ...
...  of 225 fish


Ques. 7

In the figure above, ...
...  if the interest rate is 8 percent, people demand 0.1  ...
... 

A) less money than the quantity supplied and the interest  ...
...  will rise.
B) less money than the quantity supplied and the interest  ...
...  will fall.
C) more money than the quantity supplied and the interest  ...
...  will fall.
D) more money than the quantity supplied and the interest  ...
...  is

A) less production efficient than point C.
B) production efficient and  ...
... .
C) not production efficient and point B is production efficient.
D)  ...
...  efficient and point B is not production efficient.


 ...
...  a person from enjoying the benefits of a good unless the person pays for the  ...
... 's total revenue, then

A) demand is elastic.
B) demand is inelastic.
 ...
...  C) demand is unit elastic.
D) the law of  ...
...  is violated.


Ques. 11

If all prices rise by 5  ...
...  and money income remains constant, the new  ...
...  have

A) a steeper slope.
B) a flatter slope.
C) a positive slope.
D)  ...

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...  the marginal private cost of producing one kilowatt of  ...
...  in California equals five cents and the marginal social cost of each  ...
...  external cost equals ________ per kilowatt.

A) five cents
B) nine cents
 ...
... 
D) fourteen cents


Ques. 2

A corporation ________ taxes on its profits and  ...
...  stockholders ________ taxes on any dividends made to them by the company.
 ...
...  D) does not pay; do not pay


Ques. 3

An example of a public good is

A)  ...
... .
B) a Ford truck.
C) a loaf of bread.
D) a home computer.


Ques. 4

 ...
...  the market for milk. If 250 gallons of milk a day are available, the ________  ...
...  that consumers are willing to pay for the  ...
... 
D) minimum; 3.25


Ques. 5

The price level in India increases from 131 to 137  ...
...  its trading partners' price levels remain constant. As a result, people  ...
...  buy ________ Indian-made goods and there will be a movement  ...
...  along India's aggregate demand curve.

A) more; upward
B)  ...
... 
D) less; upward


Ques. 6

If an individual's income increases

A)  ...
...  curves shift outward in a parallel manner.
B) the person's budget line  ...
...  outward in a parallel manner.
C) there will be no impact on the  ...
...  line or indifference curves.
D) None of the above answers is correct.


Ques. 7
 ...
... 
The figure above shows the demand and supply of dollars in the foreign  ...
... . The equilibrium in the market occurs at a price of ________ Brazilian reals per  ...
...  and a quantity of ________ billion dollars. ...

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...  cut in tax rates effects equilibrium real GDP through  ...
...  channels: ________ disposable income and  ...
...  spending, and ________ the size of the multiplier  ...
... ; decreasing


Ques. 2

Hyperinflation can be caused by

A) the central  ...
...  bonds to the public.
C) the central bank selling bonds to the public.
D) the  ...
...  selling bonds to the central bank.


Ques. 3

In 2008, the Treasury and  ...
...  actions in response to the deepening financial crisis.

One action was the  ...
...  of the Term Securities Lending Facility,  ...
...  which the Fed will loan up to 200 billion of treasury  ...
...  in exchange for
A) stock. B) corporate bonds.
 ...
... -backed securities. D) required bank reserves.


Ques. 4

Although the  ...
...  had traditionally made discount loans only to ________, in response to the  ...
...  primary dealers eligible for discount loans as well.

A) commercial banks B)  ...
...  banks
C) government agencies D) mortgage  ...
... 


Ques. 5

Which of the following is an appropriate policy  ...
...  a central bank to follow if the economy is plagued  ...
...  deflation?

A) using contractionary  ...
...  policy to drive up interest rates
B) gradually raising the required  ...
...  rate
C) increasing the target interest  ...
...  on overnight loans
D) consistently pursuing policy to  ...
...  the credibility of the central bank


Ques. 6

The Federal  ...
...  responded to the 2008 financial crisis in several ways. Which of  ...
...  following is one of the ways the Fed responded?

A) The  ...
...  helped Citibank to acquire General Motors and Chrysler. ...
... 
B) The Fed lent investment banks Treasury securities in exchange for  ...
... ) The Fed lowered the required reserve ratio on demand deposit accounts in order  ...
...  increase the amount of bank reserves.
D) The Fed banned  ...
...  banks from obtaining discount loans.


Ques. ...
...  7

According to the quantity theory of money, the inflation rate  ...
...  the money supply.
B) the growth rate of the money supply minus the growth  ...
...  of real output.
C) the growth rate of  ...
...  output minus the growth rate of the money supply.
D) the money  ...
... .


Ques. 8

Refer to Figure 27-12. An increase in government purchases of 200  ...
...  causes aggregate demand to shift ultimately from AD1 to  ...
... .

Assuming a constant price level, the difference in real GDP  ...
...  point A and point B will be ________ 200 billion.
 ...
...  A) less than
B) equal to
C) greater than
D)  ...
...  is insufficient information given here to draw a conclusion.


 ...
... . 9

C = 2,550 + (MPC)Y
I = 800
G = 1,100
NX = 50

 ...
...  the equilibrium level of GDP is 11,250, using the equations  ...
...  C, I, G, and NX shown above, find the value of the  ...
...  propensity to consume.

What will be an ideal response?


Ques. 10

 ...
...  increase in government purchases of 200 billion will shift the aggregate  ...
...  curve to the right by

A) less than 200 billion.
B) more than 200 billion. ...
... 
C) 200 billion.
D) None of the above are correct. This policy  ...
...  the long-run aggregate supply curve. ...

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...  conjunction with a model, economists can

A) suspend the rationality  ...
... 
B) avoid having their model depend on any additional assumptions.
C) hold  ...
...  factors constant.
D) be sure that the model will  ...
...  when

A) the average number of hours people work goes up.
B) the  ...
...  rate decreases.
C) the average output  ...
...  time period decreases.


Ques. 3

Which of the following is NOT a non-price  ...
...  of demand?

A) the price of the good  ...
...  service
B) tastes and preferences
C) expectations of  ...
...  prices
D) prices of related goods and services


Ques. 4

 ...
...  most oligopolistic industry of those presented in the above table is  ...
...  is efficient when

A) it generates a point beyond the production  ...
...  is being produced given current levels of resources and technology.
C)  ...
...  change occurs.
D) the maximum amounts of  ...
...  most important good are produced.


Ques. 6

Which of  ...
...  a way in which deficit spending can impose a burden on future generations?  ...
... .

Failure to allocate deficit spending to uses that boost  ...
...  (GDP) will require taxing future generations at a higher rate to repay the  ...
...  public debt. II. Government deficits that lead to higher employment and real  ...
...  Product (GDP) in the future will generate increased income taxes for future  ...
...  by spending the higher tax revenues, creating higher future government budget  ...
...  spending fuels increased consumption of goods and services by the current  ...
...  that crowds out capital investment, thereby  ...
...  future generations with a smaller stock of capital  ...
...  existed. A) I only
B) II only
C) I and III only
D) II and III only


Ques.  ...
...  in its checking account for normal transactions, 500 in cash for emergencies,  ...
...  1500 as a store of value when the interest rate is 4  ...
... .

If the interest rate rises to 10 percent, which of the  ...
...  patterns of holding money would be most  ...
...  and why? A) Transactions demand1000;  ...
...  demand350; Asset demand500, because the  ...
...  cost of holding money has increased. The  ...
...  money balances held as an asset is greatest because  ...
... -bearing assets are much more attractive when interest rates are higher.
 ...
...  B) Transactions demand500; Precautionary  ...
... ; Asset demand1400, because the opportunity cost of  ...
...  money balances has risen. The reduction in money  ...
...  held for transaction purposes falls the most because  ...
...  cards more when the opportunity cost of holding money increases.
C)  ...
...  demand1000; Precautionary demand500; Asset  ...
... , because only the asset demand is responsive to changes in the  ...
...  rate.
D) Transactions demand800;  ...
...  demand600; Asset demand1500, because people  ...
...  economize on their money balances for making transactions, but the  ...
...  of an emergency increases with the  ...
...  rate. People will also expect rates to go  ...
... , so they will hold money as an asset until the rates increase further.
 ...
... 
According to classical economists, when aggregate demand decreases

A) unemployment  ...
...  reduced, the price level increases, and equilibrium real GDP is  ...
... 
B) unemployment is reduced, the price level decreases, and equilibrium real GDP is  ...
...  temporarily increases, the price level increases, and equilibrium real GDP is  ...
...  temporarily increases, the price level decreases, and equilibrium real GDP is  ...

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... An increase in the interest rates will
a. ...
...  to hold less money, which, in turn, means that the velocity of money increases.
 ...
...  to hold less money, which, in turn, means that the velocity of money decreases.
 ...
...  to hold more money, which, in turn, means that the velocity of money increases.
 ...
...  to hold more money, which, in turn, means that the velocity of money decreases.

 ...
...  grows faster in developing countries than in industrial ones because mortality  ...
...  are higher in low-income countries.
a. True
b. False
 ...
...  whether the statement is true or false

Question 3

 ...
...  the elasticity of supply when an increase in demand  ...
...  the equilibrium price and quantity to change from 2.00 and 500  ...
...  2.80 and 1,000, respectively.

Question 4

An  ...
...  in M or an increase in V, other things equal,  ...
...  definitely increase:
a. the price level.
b. real GDP.
c. nominal GDP.
d.  ...
... .

Question 5

As all available statistics show us, because the average  ...
...  population growth is 1.4 percent higher in  ...
...  countries than in industrial nations, economic growth  ...
...  lower in low-income countries.
a. True
b. False
 ...
...  whether the statement is true or false

Question 6

 ...
...  the income elasticity of demand for DVDs, where a  ...
...  percent increase in income results in a 20 percent increase in the  ...
...  for DVDs. Decide from your answer, whether DVDs are normal or  ...
...  goods.

Question 7

Higher rates of anticipated inflation would tend  ...
... :
a. increase velocity and decrease nominal GDP.
b. increase  ...
...  and increase nominal GDP.
c. decrease  ...
...  and decrease nominal GDP.
d. decrease  ...
...  and increase nominal GDP.

Question 8

 ...
...  things equal, a country's long-run aggregate supply will shift to the right when the  ...
...  of labor rises.
a. True
b. False
 ...
...  whether the statement is true or false

Question 9

 ...
...  the cross-price elasticity of demand between computers and printers,  ...
...  a 10 percent decrease in the price of computers results in a 15 percent  ...
...  in the demand for printers.

Question 10

If M  ...
... , and V remains constant:
a. P must rise.
 ...
... . Q must rise.
c. P and Q must each rise.
d. Any of the above  ...
...  happen, but none of the above must happen.

Question 11

 ...
...  long-run growth of an economy depends on productive  ...
...  (land, labor, and capital) and on  ...
...  advances.
a. True
b. False
Indicate  ...
...  the statement is true or false

Question 12

 ...
...  the elasticity of demand when an increase in supply  ...
...  the equilibrium price and quantity to change from 9 and 2,000 to  ...
...  and 3,000, respectively.

Question 13

 ...
...  of the following is true about the  ...
...  of exchange?
a. The equation of exchange  ...
... . Velocity represents the average number of times that a dollar is used in  ...
...  a one-year period.
c. If M increases, and V remains constant, then P must rise  ...
... /or Q must rise.
d. All of the above are true about the equation  ...
...  exchange. ...

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