When aggregate demand declines unexpectedly and wage contracts are fixed, then the average price level will:
a. increase and business firms will hire new workers.
b. decline and firms will reduce wages.
c. decline and business firms will lay off workers.
d. increase and business firms will lay off workers.
e. increase and business firms will increase wages.
Question 2Moving along the inelastic portion of a demand curve, a large percentage change in price leads to a smaller percentage change in quantity demanded.
a. True
b. False
Indicate whether the statement is true or false
Question 3A bank's assets consist of 1,000,000 in total reserves, 2,100,000 in loans, and a building worth 1,200,000 . Its liabilities and capital consist of 3,000,000 in demand deposits and 1,300,000 in capital. If the bank is required to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves? How much could it loan out as a result?
a. zero; zero
b. 300,000; 300,000
c. 300,000; 900,000
d. 700,000; 2,100,000
Question 4If nominal wage rates are contractually determined and cannot change in the short run, then an unexpected increase in the inflation rate will:
a. increase business profits and reduce the unemployment rate.
b. reduce both business profits and the unemployment rate.
c. reduce business profits and increase the unemployment rate.
d. increase both business profits and the unemployment rate.
e. cause no change in business profits or the unemployment rate
Question 5Moving along an elastic portion of a demand curve, a small percentage change in price leads to a larger percentage change in quantity demanded.
a. True
b. False
Indicate whether the statement is true or false
Question 6A bank's assets consist of 1,000,000 in total reserves, 2,100,000 in loans, and a building worth 1,200,000 . Its liabilities and capital consist of 3,000,000 in demand deposits and 1,300,000 in capital. If the required reserve ratio is 20 percent, what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?
a. 600,000; 600,000
b. 600,000; 3,000,000
c. 400,000; 400,000
d. 400,000; 2,000,000
Question 7Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:
a. the aggregate demand curve will shift to the right.
b. the aggregate supply curve will shift to the left.
c. the economy will return to its natural rate of unemployment.
d. the short-run Phillips curve will shift to the right.
e. the economy will face both higher inflation and a higher unemployment rate.
Question 8The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S. Postal Service.
a. True
b. False
Indicate whether the statement is true or false
Question 9A bank's assets consist of 1,000,000 in total reserves, 2,100,000 in loans, and a building worth 1,200,000 . Its liabilities and capital consist of 3,000,000 in demand deposits and 1,300,000 in capital. If the required reserve ratio is 20 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?
a. 600,000; 600,000
b. 600,000; 3,000,000
c. 400,000; 400,000
d. 400,000; 2,000,000
Question 10Suppose that an increase in aggregate demand causes an unplanned depletion in business inventories. Which of the following situations will result from this?
a. The economy moves up the short-run Phillips curve.
b. The short-run Phillips curve shifts to the right.
c. The short-run Phillips curve shifts to the left.
d. The aggregate supply curve shifts to the left.
e. The economy moves down the short-run Phillips curve.
Question 11If a huge percentage change in price leads to a small percentage change in quantity demanded, then demand is said to be elastic.
a. True
b. False
Indicate whether the statement is true or false
Question 12A bank's assets consist of 1,000,000 in total reserves, 2,100,000 in loans, and a building worth 1,200,000 . Its liabilities and capital consist of 3,000,000 in demand deposits and 1,300,000 in capital. If the required reserve ratio is 10 percent, what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?
a. 700,000; 700,000
b. 700,000; 7,000,000
c. 300,000; 300,000
d. 300,000; 3,000,000
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