Question 1
Question
GDP is defined as the
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value of all goods and services produced within a country in a given period of time
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value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time
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value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time
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value of all final goods and services produced within a country in a given period of time
Question 2
Question
Gross domestic product measures
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income but not expenditures
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expenditures but not income
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both income and expenditures
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neither income nor expenditures
Question 3
Question
Grapes are considered intermediate goods
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if the purchaser eats them, but not if the purchaser uses them to make wine to see
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if the purchaser uses them to make wine to sell others but not if the purchaser eats them
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whether the purchaser uses them to make wine to sell or eats them
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None of the above is correct
Question 4
Question
Which of the following transactions adds to U.S. GDP for 2010?
Answer
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In December 2010, Isabella eats onions that she harvested from her backyard garden in October 2010
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In 2010, Ashley sells a car that she bought in 2006 to William for $5,000
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An American professor teaches Economics in China during the summer of 2010 and earns the equivalent of $8000 during that time
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In February 2010, Amanda buys a ticket for $10 to visit a zoo in Florida
Question 5
Question
In the economy of Ukzten in 2010, consumption was $5000, exports was $100, government purchases were $900, imports were $200, and investment was $1000. What was Ukzten's GDP in 2010?
Question 6
Question
Which of the following is NOT included in the consumption component of GDP?
Answer
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Aunt Jane buys a new house
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Bill buys a pizza for dinner
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Bob pays his tuition and fees for college
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You get a nice haircut
Question 7
Question
Darnell's employer upgrades all of its computer systems using U.S. made parts. Which component of GDP is this transaction included?
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Consumption
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Investment
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Government Expenditure
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Net Exports
Question 8
Question
If in some year real GDP was $25 billion and nominal GDP was $30 billion, what was GDP deflator?
Question 9
Question
Changes in nominal GDP reflect
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only changes in prices
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neither changes in prices nor changes in the amounts being produced
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only changes in the amounts being produced
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both changes in prices and changes in the amounts being produced
Question 10
Question
When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study
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GNP
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the GDP deflator
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real GDP
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nominal GDP
Question 11
Question
Which of the following statement about GDP is correct?
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Nominal GDP values production at constant prices, whereas real GDP values production at current prices
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Nominal GDP values production at the cost of the resources used in the production process, whereas real GDP values production at market prices
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Nominal GDP values production at current prices, whereas real GDP values production at constant prices
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Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process
Question 12
Question
The CPI is a measure of the overall cost of
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the inputs purchased by a typical producer
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the goods and services produced in the economy
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the goods and services purchased by a typical consumer
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the stocks on the New York Stock Exchange
Question 13
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The term inflation is used to describe a situation in which
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stock-market prices are rising
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the overall level of prices in the economy is increasing
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incomes in the economy are increasing
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the economy is growing rapidly
Question 14
Question
If the price of Spanish olives imported into the United States decreases, then there would be an effect on the value of
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neither the GDP deflator nor the consumer price index
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the GDP deflator but not on the value of the consumer price index
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the consumer price index but not on the value of the GDP delator
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both the GDP deflator and the consumer price index
Question 15
Question
Suppose that U.S. mining companies purchase German made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?
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The consumer price index and the GDP deflator will both fall
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The consumer price index and the GDP deflator will both be unaffected
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The consumer price index will fall, and the GDP deflator will be unaffected
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The consumer price index will be unaffected, and the GDP deflator will fall
Question 16
Question
In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?
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$11.50
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$5.48
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$2.10
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$24.15
Question 17
Question
The nominal interest rate tells you
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how fast the purchasing power of your bank account rises over time
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the number of dollars in your bank account today
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the purchasing power of your bank account today
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how fast the number of dollars in your bank account rises over time
Question 18
Question
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the purchasing power of her $1000 in 2011?
Answer
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180 hamburgers
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250 hamburgers
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200 hamburgers
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220 hamburgers
Question 19
Question
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the inflation rate?
Question 20
Question
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the real interest rate?
Question 21
Question
Who is included in the labor force by the Bureau of Labor Statistics?
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Gabe, who does not have a job, but is looking for work
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Marcus, a full-time student not looking for work
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Chris, a retired engineer not looking for other work
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None of the above is correct
Question 22
Question
In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Italian adult non-institutionalized population was 51.070 million, the labor force was 24.710 million, and the number of people employed was 22.765 million. According to these numbers, the Italian labor-force participation rate and unemployment rate were about
Answer
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48.4% and 7.9%
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44.6% and 3.8%
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48.4% and 3.8%
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44.6% and 7.9%
Question 23
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Unemployment that is due to a recession is
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Frictional unemployment
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Structural unemployment
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Cyclical unemployment
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Seasonal unemployment
Question 24
Question
John worked in a ski resort last winter but he got laid off in May. Curtis has looked for work as an entry-level accountant for some time. While the general demand for accountants doesn't appear to be falling, there seems to be more job openings for senior-level accountants.
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John and Curtis are both seasonally unemployed
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John is structurally unemployed, and Curtis is seasonally unemployed
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John and Curtis are both structurally unemployed
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John is seasonally unemployed, and Curtis is structurally unemployed
Question 25
Question
Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?
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2,500 deficit
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2,500 surplus
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1,000 deficit
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1,000 surplus
Question 26
Question
In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?
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$60 billion and $5 billion
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$50 billion and -$5 billion
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$5 billion and $60 billion
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-$5 billion and $50 billion
Question 27
Question
In a closed economy, in Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
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the government as a budget deficit and investment is 1,000
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the government has a budget surplus and investment is 1,000
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the government has a budget surplus and investment is 2,000
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the government has a budget deficit and investment is 2,000
Question 28
Question
In a closed economy, national saving is
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equal to investment
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usually greater than investment
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usually less than investment
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always less than investment
Question 29
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Which of the following would a macroeconomist consider as investment?
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Marisa purchases a bond issued by Proctor and Gamble Corp.
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Karlee purchases stock issued by Texas Instruments, Inc.
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Charlie builds a new coffee shop
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All of the above are correct
Question 30
Question
Which list ranks assets form most to least liquid?
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$10 bills, cars, houses, bonds
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$10 bills, bonds, cars, houses
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bonds, $10 bills, cars, houses
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bonds, cars, $10 bills, houses
Question 31
Question
Which of the following is included in M2 but not in M1?
Question 32
Question
You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?
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Unit of account
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Liquidity
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Store of Value
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Medium of Exchange
Question 33
Question
If the reserve ratio is 5 percent and banks keep no excess reserves, then $1,000 of additional deposits can create up to (hint: get the money multiplier first)
Question 34
Question
If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
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It increases by $100,000
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It increases by $150,000
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It decreases by $100,000
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It decreases by $150,000
Question 35
Question
To explain the long-run determinants of the price level and the inflation rate, most economists rely on the
Question 36
Question
When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve (hint: how selling bonds changes the money supply)
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Shifts right, causing the price level to rise
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Shifts right, causing the price level to fall
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Shifts left, causing the price level to rise
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Shifts left, causing the price level to fall
Question 37
Question
When the money market is drawn with the value of money on the vertical axis,
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money demand slopes upward and money supply is horizontal
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money demand slopes downward and money supply is horizontal
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money demand slopes upward and money supply is vertical
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money demand slopes downward and money supply is vertical
Question 38
Question
As the price level decreases, the value of money
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increases, so people want to hold more of it
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increases, so people want to hold less of it
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decreases, so people want to hold more of it
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decreases, so people want to hold less of it
Question 39
Question
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
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The $80 is a real variable and the quantity of shoes is a nominal variable
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The $80 is a nominal variable and the quantity of shoes is a real variable
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Both the $80 and the quantity of shoes are nominal variables
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Both the $80 and the quantity of shoes are real variables
Question 40
Question
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
Answer
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your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased
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your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
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your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
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your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.
Question 41
Question
According to the principle of monetary neutrality, a decrease in the money supply will not change
Question 42
Question
Suppose the money supply tripled, but at the same time velocity fell by half and real GDP was unchanged. According to the quantity equation the price level
Question 43
Question
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
Answer
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both the nominal and the real interest rate rise
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neither the nominal nor the real interest rate rise
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the nominal interest rate rises, but the real interest rate does not
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the real interest rate rises, but the nominal interest rate does not
Question 44
Question
In which case below is the real interest rate the highest? (hints: use fisher effect equation)
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the nominal interest rate= 4% and inflation= 3%
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the nominal interest rate= 3% and inflation= 1%
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the nominal interest rate= 2% and inflation= -2%
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the nominal interest rate= 1% and inflation= -4%
Question 45
Question
Which of the following is one of the long-run economic goals?
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a zero unemployment rate
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a stable interest rate
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high economic growth
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a stable exchange rate
Question 46
Question
Which of the following is correct?
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Economic fluctuations are easily predicted by competent economists
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Recessions have never occurred very close together
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Spending, income, and production do not fluctuate closely with real GDP
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None of the above is correct
Question 47
Question
During recessions
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sales and profits fall
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sales and profits rise
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sales rise, profits fall
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profits rise, sales fall
Question 48
Question
The long-run aggregate supply curve shifts right if
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either immigration from abroad increases or more people get college degrees
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immigration from abroad increases, but not if more people get college degrees
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more people get college degrees, but not if immigration from abroad increases
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none of the above are correct
Question 49
Question
According to Sticky-wage theory, the wage contract was determined in advance based on the expected price level. The wage was fixed in the short run. If the actual price level was higher than the expected price level, the firm would have
Answer
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lower labor costs and lower profits. So the firm would decrease the production
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lower labor costs and higher profits. So the firm would increase the production
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higher labor costs and lower profits. So the firm would decrease the production
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higher labor costs and higher profits. So the firm would decrease the production
Question 50
Question
A decrease in the expected price level shifts
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only the short-run aggregate supply curve left
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only the short-run aggregate supply curve right
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both the short-run and the long-run aggregate supply curve left
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both the short-run and the long-run aggregate supply cure right
Question 51
Question
Which of the following is NOT included in aggregate demand? (hint: AD = C + I + G + NX)
Answer
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purchases of stock and bonds
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purchases of services such as visits to the doctor
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purchases of capital goods such as equipment in a factory
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purchases by foreigners of consumer goods produced in the United States
Question 52
Question
If marginal propensity to consume (MPC) is 0.60, how much money will the household spend to buy goods and services with $50 extra income?
Answer
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$20, the multiplier is 2.5
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$20, the multiplier is 1.67
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$30, the multiplier is 2.5
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$30, the multiplier is 1.67
Question 53
Question
If marginal propensity to consume (MPC) is 0.60 and there is no crowding out, how much should Congress increase government spending to end the recession?
Answer
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$50 billion
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$160 billion
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$240 billion
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$300 billion
Question 54
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) Assume policymakers do nothing, according to the theory of liquidity preference, what happens to money market?
Answer
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Money demand shifts right and interest rate rises
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Money demand shifts left and interest rate drops
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Money supply shifts right and interest rate drops
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Money supply shifts left and interest rate rises
Question 55
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) IN AD-AS diagram, which curve shifts and in which direction?
Answer
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Aggregate supply shifts right
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Aggregate supply shifts left
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Aggregate demand shifts right
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Aggregate demand shifts left
Question 56
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) In the short run what happens to the price level and real GDP?
Answer
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both the price level and real GDP rise
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both the price level and real GDP fall
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the price level rises and real GDP falls
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the price level falls and real GDP rises
Question 57
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If the Fed wants to stabilize this economic fluctuation, it should
Answer
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buy bonds. So interest rate rises to make the curve in AD-AS diagram shift back
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buy bonds. So interest rate drops to make the curve in AD-AS diagram shift back
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sell bonds. So interest rate rises to make the curve in AD-AS diagram shift back
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sell bonds. So interest rate drops to make the curve in AD-AS diagram shift back
Question 58
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If the Fed does nothing, what might Congress do to stabilize the economic fluctuation?
Answer
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decrease government spending or raise taxes
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increase government spending or raise taxes
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decrease government spending or cut taxes
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increase government spending or cut taxes
Question 59
Question
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If policymakers do nothing, the economy is able to correct the short-run fluctuation by itself. To reach the new long-run equilibrium, the change in price expectations created by this event shifts
Answer
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long-run aggregate supply right
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long-run aggregate supply left
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short-run aggregate supply right
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short-run aggregate supply left
Question 60
Question
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) Which curve shifts and in which direction?
Answer
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aggregate demand shifts right
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aggregate demand shifts left
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aggregate supply shifts right
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aggregate supply shifts left
Question 61
Question
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) If the policymakers do nothing at first, in the short-run what happens to the price level and real GDP?
Answer
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both the price level and real GDP rise
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both the price level and real GDP fall
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the price level rises and real GDP falls
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the price level falls and real GDP rises
Question 62
Question
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) If policymakers want to stabilize the economic fluctuation caused by hurricane Sandy, which curve shifts and in which direction?
Answer
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aggregate demand shifts right
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aggregate demand shifts left
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aggregate supply shifts right
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aggregate supply shifts left
Question 63
Question
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) How is the new long-run equilibrium different from the original one?
Answer
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both price and real GDP are higher
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both price and real GDP are lower
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the price level is the same and GDP is higher
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the price level is higher and real GDP is the same
Question 64
Question
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the short-run what happens to the price level and unemployment rate?
Answer
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both the price level and unemployment rate rise
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both the price level and unemployment rate fall
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the price level rises and unemployment rate falls
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the price level falls and unemployment rate rises
Question 65
Question
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the short-run, this event causes
Answer
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inflation
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recession
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stagflation
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none of the above
Question 66
Question
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) What happens to the expected price level and what impact does this have on wage bargaining?
Answer
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The expected price level falls. Bargains are struck for higher wages
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The expected price level falls. Bargains are struck for lower wages
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The expected price level rises. Bargains are struck for higher wages
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The expected price level rises. Bargains are stuck for lower wages
Question 67
Question
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the long run, the change in price expectations created by this event shifts
Answer
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long-run aggregate supply right
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long-run aggregate supply left
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short-run aggregate supply right
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short-run aggregate supply left
Question 68
Question
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) How is the new long-run equilibrium different from the original one?
Answer
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the price level and real GDP are higher
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the price level and real GDP are lower
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the price level is higher and real GDP is the same
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the price level is higher and real GDP is lower
Question 69
Question
An economy if which the typical consumer's basket consists of 5 books and 10 calculators.
2006: price of a book $24 / price of a calculator $8
2007: price of a book $30/ price of a calculator $12
2008: price of a book $32/ price of a calculator $15
The cost of a basket in 2006 was
Question 70
Question
An economy if which the typical consumer's basket consists of 5 books and 10 calculators.
2006: price of a book $24 / price of a calculator $8
2007: price of a book $30/ price of a calculator $12
2008: price of a book $32/ price of a calculator $15
If 2006 is the base year, then the consumer price index was
Answer
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100 in 2006, 270 in 2007, and 310 in 2008
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200 in 2006, 135 in 2007, and 155 in 2008
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200 in 2006, 270 in 2007, and 310 in 2008
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100 in 2006, 135 in 2007, 155 in 2008
Question 71
Question
An economy if which the typical consumer's basket consists of 5 books and 10 calculators.
2006: price of a book $24 / price of a calculator $8
2007: price of a book $30/ price of a calculator $12
2008: price of a book $32/ price of a calculator $15
The inflation rate was
Answer
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25.9% in 2007 and 14.8% in 2008
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35% in 2007 and 20% in 2008
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35% in 2007 and 14.8% in 2008
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22.6% in 2007 and 12.9% in 2008
Question 72
Question
Assets Liabilities
Reserves $2,000 Deposits $10,000
Loans $8,000
The reserve ratio for this bank is
Question 73
Question
Assets Liabilities
Reserves $2,000 Deposits $10,000
Loans $8,000
If $1,000 is deposited into the First Bank of Fairfield, and the bank takes no other actions its (hint: "takes no other actions" means the bank hasn't loaned out the new deposits yet, and keeps all new deposits as reserves)
Answer
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reserves will increase by $200
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liabilities will decrease by $1,000
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assets will increase by $1,000
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reserves will increase by $800
Question 74
Question
Assets Liabilities
Reserves $2,000 Deposits $10,000
Loans $8,000
Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
Question 75
Question
Draw a MS-MD diagram and shift MD to the right. What is the quantity measured along the horizontal axis?
Answer
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the price level
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the real interest rate
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the value of money
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the quantity of money
Question 76
Question
Draw a MS-MD diagram and shift MD to the right. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?
Answer
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an increase in the value of money
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a decrease in the price level
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an open-market purchase of bonds by the Federal Reserve
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it is the holiday season and people want to purchase more goods and services
Question 77
Question
Draw a MS-MD diagram and shift MD to the right. Suppose the relevant money-demand curve is the one on the left; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to
Answer
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5,000
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7,500
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10,000
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15,000