1. Economics is best defined as the study of A) financial decision-making. B) how consumers make purchasing decisions.

C) choices made by people faced with scarcity. D) inflation, unemployment, and economic growth. Points Earned: 0.4/0.4 Correct Answer(s): C

2. Scarcity can best be defined as a situation in which A) there are no buyers willing to purchase what sellers have produced. B) there are not enough goods to satisfy all of the buyers' demand. C) the resources we use to produce goods and services are limited. D) there is more than enough money to satisfy consumers' wants. Points Earned: 0.4/0.4 Correct Answer(s): C

3. An arrangement that allows buyers and sellers to exchange things is called A) a contract. B) a market. C) money. D) efficient. Points Earned: 0.4/0.4 Correct Answer(s): B

4. Tradeoff is A) allowing the government and other organizations to choose for us. B) sacrificing one thing for another. C) deciding who consumes the products produced in an economy. D) holding other variables fixed. Points Earned: 0.0/0.4 Correct Answer(s): B

5. Which of the following is a question answered with positive economic analysis? A) Should the college reduce tuition for out-of-state residents? B) Should the college charge higher tuition for part-time students? C) If the college increased its eligibility requirements for enrollment, will class sizes decline? D) Should the college eliminate its athletic program to cut its costs? Points Earned: 0.4/0.4 Correct Answer(s): C

6. Deciding if a company will produce automobiles by robotics or manual labor answers the economic question of A) who consumes the products produced. B) what products will be produced.

C) where will the products be consumed. D) how will the products be produced. Points Earned: 0.4/0.4 Correct Answer(s): D

7. To make things simpler and focus attention on what really matters, economists would A) use assumptions. B) ignore all variables. C) think at the margin. D) respond to incentives. Points Earned: 0.0/0.4 Correct Answer(s): A

8. The Latin phrase ceteris paribus means that when a relationship between two variables is being studied, A) both are treated as unpredictable. B) neither of those two variables is allowed to change. C) all other variables are held fixed. D) we recognize that some factors are unknown. Points Earned: 0.0/0.4 Correct Answer(s): C

9. Jerome has a "C" average in his philosophy course and a "B" average in his economics course. He decides to study an extra hour for his philosophy exam. This is an example of A) thinking at the margin. B) using assumptions to simplify. C) ceteris paribus. D) caveat emptor. Points Earned: 0.4/0.4 Correct Answer(s): A

10. When economists assume that people are rational and respond to incentives, they mean A) people act with kindness. B) people are altruistic. C) people act in their own self-interest. D) people are selfish. Points Earned: 0.4/0.4 Correct Answer(s): C

11. Macroeconomics is best described as the study of A) very large issues. B) the choices made by individual households, firms, and governments. C) the nation's economy as a whole. D) the relationship between inflation and wage inequality. Points Earned: 0.4/0.4 Correct Answer(s): C

12. Which of the following is a microeconomic question? A) Should companies pay for employees' health insurance? B) Why do some countries have higher economic growth rates than other countries? C) Should Congress and the president take action to reduce the unemployment rate? D) Should the Fed attempt to influence the interest rate to control potential inflation? Points Earned: 0.4/0.4 Correct Answer(s): A

13. There is a positive relationship between two variables if A) they move in opposite directions. B) they move in the same direction. C) one variable changes and the other does not. D) neither variable moves. Points Earned: 0.4/0.4 Correct Answer(s): B

14. If the variable on the vertical axis increases by 20 and the variable on the horizontal axis increases by 5, the slope of the line is A) 0.25. B) 4. C) 15. D) 100. Points Earned: 0.4/0.4 Correct Answer(s): B

15. Summary of the article:Labor Shortage in China May Lead to Trade Shift By David BarbosaThe New York TimesApril 3, 2006A changing Chinese economy has resulted in significant labor shortages. Factories continue to expand as Chinas economy grows, but the number of uneducated workers is declining and the population of young people is leveling off. Add to these an increased number of people remaining inland, and this leaves coastal regions which specialize in factory production and exports with a large number of job openings.The labor shortages are resulting in wage increases, pushing up costs on Chinese-made products. This could make China less competitive in global markets. Anticipating a continuation of rising costs for Chinese manufacturing, international manufacturers are already looking at moving factories to countries with lower costs.The increase in wages is also fueling a growing Chinese middle class. Minimum wages in big cities have grown roughly 25% over the past three years, and infrastructure, housing and retail projects have started to develop in more rural areas. The number of people going to college has also increased significantly. In 2005, over 14 million people enrolled in Chinese colleges and universities, an increase of more than 250% since 1999.Labor shortages and the resulting cost and wage increases may prompt even more changes in China. Labor conditions and worker benefits have already started to improve, and increased manufacturing costs could cause a shift away from the production of lower-end products. Rising wages could create an increased demand for imports, and factories have started moving inland, where labor is more readily available.This Application reinforces the basic definition of economics, which is the A) possible or feasible combinations of an economy's production options. B) study of choices made by people when there is scarcity. C) arrangement that allows buyers and sellers to exchange things. D) forces that affect economic activity and predict the consequences of alternative actions. Points Earned: 0.0/0.4

Correct Answer(s):

16. What factor of production is the primary focus of this Application? A) natural resources B) physical capital C) labor D) entrepreneurship Points Earned: 0.0/0.4 Correct Answer(s): C

17. According to the Application, the number of people in China who are going to college has increased significantly. An increase in college enrollment leads to a more educated workforce and, in turn, higher wages. Obtaining an education in order to receive a higher wage is an example of which element of the economic way of thinking? A) thinking at the margin B) response to incentives C) isolation of variables D) using assumptions to simplify Points Earned: 0.4/0.4 Correct Answer(s): B

18. One of the macroeconomic issues addressed in this Application is A) companies increasing worker benefits. B) the increase in college enrollment. C) the growth of the Chinese economy. D) the decisions by workers to remain inland. Points Earned: 0.4/0.4 Correct Answer(s): C

19.

Figure 1A1 Refer to Figure 1A.1. If the hours worked per week is 20, the income per week is A) 50 B) 100 C) 150 D) 200 Points Earned: 0.4/0.4 Correct Answer(s): C

20. Refer to Figure 1A.1. The slope of the line between the points where income equals 50 and income equals 200 is A) 0.2. B) 5.

C) 10. D) 50. Points Earned: 0.4/0.4 Correct Answer(s): B

21.

Figure 1A2 Refer to Figure 1A.2. If this consumer rents 60 DVDs, how many movie tickets will she purchase? A) 0 B) 5 C) 10 D) 15 Points Earned: 0.0/0.4 Correct Answer(s): B

22. Refer to Figure 1A.2. The slope between points a and c is A) -5. B) -6. C) 10. D) 30. Points Earned: 0.0/0.4 Correct Answer(s): B

23. The slope of a nonlinear curve A) is constant. B) is negative. C) is zero. D) changes along the curve. Points Earned: 0.4/0.4 Correct Answer(s): D

24. If the price of monthly satellite TV service increases from $40 to $50, the percentage change is A) 5 percent. B) 20 percent. C) 25 percent. D) 45 percent. Points Earned: 0.0/0.4 Correct Answer(s): C

25. To increase income by $120 when the slope of the curve showing the relationship between your income and work hours is 8, how many extra hours will you need to work? A) 8 B) 15 C) 112

D) 960 The opportunity cost of something is A) the cost of the labor used to produce it. B) what you sacrifice to get it. C) the price charged for it. D) the search cost required to find it. Points Earned: 0.5/0.5 Correct Answer(s): B

2. Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's opportunity cost of running the business? A) $104,000 B) $86,000 C) $62,000 D) $44,000 Points Earned: 0.0/0.5 Correct Answer(s): B

3. An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is equal to A) the cost of bait and any other monetary expenses. B) zero, because the person doesn't have a job. C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he was working. D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time. Points Earned: 0.0/0.5 Correct Answer(s): D

4. Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year on room and board. If you were working full time, you could earn $30,000 per year. What is your opportunity cost of attending college for one year? A) $32,000 B) $38,000 C) $54,000 D) $62,000 Points Earned: 0.0/0.5 Correct Answer(s): C

5.

Figure 2.1 Refer to Figure 2.1. If you are producing 600 tons of agricultural products per year, what is the maximum amount of manufactured products you can produce per year?

A) 300 B) 500 C) 600 D) 700 Points Earned: 0.0/0.5 Correct Answer(s): A

6. Refer to Figure 2.1. If you choose to produce only agricultural products, what is the maximum quantity you can produce per year? A) 200 tons B) 400 tons C) 600 tons D) > 600 tons Points Earned: 0.0/0.5 Correct Answer(s): D

7. Refer to Figure 2.1. What is the opportunity cost of increasing production of manufactured products from 500 tons to 600 tons per year? A) 200 tons of agricultural products per year B) 400 tons of agricultural products per year C) 500 tons of agricultural products per year D) 600 tons of agricultural products per year Points Earned: 0.5/0.5 Correct Answer(s): A

8. The marginal principle implies that an individual should produce or consume where A) marginal benefit exceeds marginal cost. B) marginal benefit is less than marginal cost. C) marginal benefit equals marginal cost. D) total benefit equals total cost. Points Earned: 0.0/0.5 Correct Answer(s): C

9.

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $32. How many hours should Joe stay open? A) 4 hours B) 5 hours C) 6 hours D) 7 hours Points Earned: 0.5/0.5 Correct Answer(s): B

10.

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 3 hours per day. If he is following the marginal principle, what must his marginal cost per hour be? A) $24 B) $32 C) $40 D) $48 Points Earned: 0.0/5.0 Correct Answer(s): D

11. When referring to "marginal" changes, the economic focus is on A) changes which affect only a few people or products. B) large changes on the low end. C) graduated changes on the high end. D) small or incremental changes. Points Earned: 5.0/5.0 Correct Answer(s): D

12. The principle of voluntary exchange is based on the idea of A) making assumptions. B) isolating variables. C) thinking at the margin. D) rational self-interest. Points Earned: 5.0/5.0 Correct Answer(s): D

13. Based on the Application, Jasper Johns' daily earnings are 33.33 times more than the housepainter's daily earnings. If Jasper Johns' earnings per day were only twice as much as the housepainter's earnings, what should he do? A) He should still hire the housepainter to paint his house. B) He should paint his house himself. C) He should hire a less productive housepainter. D) He should remain indifferent as to who paints the house, for the difference in daily earnings would now be much less significant. Points Earned: 5.0/5.0 Correct Answer(s): B

14. A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50 percent. Which of the following is the most likely explanation of this finding? A) the principle of opportunity cost B) the principle of diminishing returns C) the marginal principle D) the spillover principle Points Earned: 5.0/5.0 Correct Answer(s): B

15. Units of Capital Number of Workers Output/Day 5 0 0 5 1 40 5 2 90 5 3 150 5 4 200 5 5 235 Table 2.3 Refer to Table 2.3. Increasing the number of workers from 2 to 3 will increase output per day by A) 60 units B) 90 units C) 150 units D) 240 units Points Earned: 0.5/0.5 Correct Answer(s): A

16. Refer to Table 2.3. The principle of diminishing returns first occurs when how many workers are hired? A) 2 B) 3 C) 4 D) 5 Points Earned: 0.0/0.5 Correct Answer(s): C

17. The real value of money A) is another word for the face value. B) reflects the purchasing power of the sum of money. C) matters less to people than its nominal value. D) is the same as its nominal value. Points Earned: 0.5/0.5 Correct Answer(s): B

18. If real salaries increase but nominal salaries do not, this means that A) the purchasing power of money has decreased. B) prices have not changed.

C) prices have risen. D) prices have fallen. Points Earned: 0.0/0.5 Correct Answer(s): D

19. Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money? A) There is no cost. B) The real interest rate that would have been earned on the money. C) The nominal interest rate that would have been earned on the money. D) The implicit cost of the money. Points Earned: 0.5/0.5 Correct Answer(s): B

20. You borrow money to buy a house in 2007 at a fixed interest rate of 6.5 percent. By 2010, the inflation rate has steadily fallen to 2.5 percent from the recent high of 4.0 percent in 2007. Considering only your mortgage, is inflation good news or bad news for you? A) bad news, because inflation hurts everyone B) bad news, because it makes the real value of your mortgage payments increase C) good news, because it makes the real value of your mortgage payments decrease D) bad news, because it makes the nominal value of your mortgage payments increase Points Earned: 0.5/0.5 Correct Answer(s): B 1. Markets exist A) so people can buy and sell things. B) because people are self-sufficient. C) because people specialize in the production of many products. D) as an arrangement where buyers do not interact with sellers. Points Earned: 0.5/0.5 Correct Answer(s): A

2.

Kites /hour Snowboards /hour Jesse 8 1 April 12 3 Table 3.1 Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one kite is painting A) 1/12 of a snowboard. B) 1/8 of a snowboard.

C) 1/3 of a snowboard. D) 3 snowboards. Points Earned: 0.0/0.5 Correct Answer(s): B

3. Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one snowboard is painting A) 1/8 of a kite. B) 1.5 kites. C) 8 kites. D) 12 kites. Points Earned: 0.5/0.5 Correct Answer(s): C

4. Based on the data in Table 3.1 A) April should specialize in painting kites and trade for snowboards. B) April should specialize in painting snowboards and trade for kites. C) Jesse should specialize in both goods. D) April should specialize in both goods. Points Earned: 0.5/0.5 Correct Answer(s): B

5. The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n. A) market advantage. B) comparative advantage. C) absolute advantage. D) specialization advantage. Points Earned: 0.5/0.5 Correct Answer(s): B

6. For country A, an export is a good produced in A) country B and purchased by residents of country B. B) country B and purchased by residents of country A. C) country A and purchased by residents of country B. D) country A and purchased by residents of country A. Points Earned: 0.5/0.5 Correct Answer(s): C

7. Summary of the article: Tribune to cut, outsource 250 call-center jobs Reuters Chicago Business August 25, 2006

In a move to cut costs and increase the value of its stock, Tribune Co. announced plans to cut 250 jobs at its newspaper call-centers and transfer those services overseas. APAC Customer Services of Deerfield, Illinois will run the call center, with calls being routed to its operations in the Philippines. Of the 250 jobs to be cut, 120 are full-time positions and 130 part-time. The job cuts represent approximately 1 percent of Tribunes publishing operations. Newspaper operations that will be affected include The Chicago Tribune and The Baltimore Sun. Tribune has already outsourced its call-center for The Los Angeles Times. Other measures Tribune has either taken or is considering in its attempt to trim costs and increase its value include stock buy-backs, the sale of assets and spinning off its broadcasting division. By shifting some of its services to the Philippines, Tribune Co. is engaging in A) outsourcing. B) insourcing. C) self-sufficiency. D) involuntary exchange. Points Earned: 0.5/0.5 Correct Answer(s): A

8. Tribune Co. is attempting to cut costs by shifting some of its services to the Philippines. This process of shifting production of products or services overseas to cut costs often results in A) greater potential for market failure for those products and services. B) greater economic uncertainty in the market for those products and services. C) lower consumer prices on those products or services. D) lower production quantities of those products or services. Points Earned: 0.5/0.5 Correct Answer(s): C

9. By shifting its call-center operations overseas to reduce costs, Tribune, Co. is applying the economic concept of A) thinking at the margin. B) comparative advantage. C) diminishing returns. D) using assumptions to simplify. Points Earned: 0.5/0.5 Correct Answer(s): B

10. In a market economy, what provides potential investors with reliable information about the financial performance of a firm? A) contracts B) insurance C) patents D) accounting rules Points Earned: 0.5/0.5 Correct Answer(s): D

11. In which system are decisions made by thousands of people who have information about resources, production technology and consumer desires? A) market system

B) centrally planned system C) command system D) socialist system Points Earned: 0.5/0.5 Correct Answer(s): A

12. In a market system, what provides individuals the information needed to make decisions? A) insurance B) prices C) patents D) government Points Earned: 0.0/0.5 Correct Answer(s): B

13. Adam Smith used the metaphor of the "invisible hand" to explain how A) markets mismatch buyers and sellers. B) business owners are benevolent. C) people acting on their own self-interest promote the interest of society as a whole. D) the production possibilities frontier illustrates efficient outcomes. Points Earned: 0.5/0.5 Correct Answer(s): C

14. In a market-based economy, the government A) allocates production. B) decides how much to produce. C) encourages insurance risk. D) enforces property rights. Points Earned: 0.5/0.5 Correct Answer(s): D

15. Providing unemployment insurance is one way a government can A) break up monopolies. B) enforce rules of exchange. C) create public-works programs. D) reduce economic uncertainty. Points Earned: 0.5/0.5 Correct Answer(s): D

16. The phenomenon which occurs when markets do not produce the most efficient outcome on their own is known as A) public goods. B) imperfect information. C) market failure. D) economic certainty. Points Earned: 0.5/0.5 Correct Answer(s): C

17. Hair Pins /hour Bandanas /hour Nigel 4 10 Mia 9 3 Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Mia's opportunity cost of producing one bandana is A) 1/3 of a hair pin. B) 2.5 hair pins. C) 3 hair pins. D) 9 hair pins. Points Earned: 0.5/0.5 Correct Answer(s): C

18. Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Which of the following is true? A) Nigel has an absolute advantage in producing hair pins but not bandanas. B) Nigel has an absolute advantage in producing bandanas but not hair pins. C) Nigel has an absolute advantage in producing both goods. D) Nigel does not have an absolute advantage in producing either good. Points Earned: 0.5/0.5 Correct Answer(s): B

19. A rich nation will trade with a poor nation because the A) rich nation has the absolute advantage in all products. B) poor nation has the absolute advantage in all products. C) poor nation has the comparative advantage in a product. D) rich nation has the comparative advantage in all products. Points Earned: 0.5/0.5 Correct Answer(s): C

20. One of the most obvious clues to the relative scarcity of a product is A) the variations in available sizes. B) its current market price. C) the limited selection of colors. D) the quality of the product. Points Earned: 0.5/0.5 Correct Answer(s): B Points Earned: 0.6/0.6

Correct Answer(s):

2. The Law of Demand can be explained as A) a lot of people wanting the same thing. B) the higher the price, the smaller the quantity demanded, ceteris paribus. C) people are willing to make limited sacrifices to acquire products. D) legal reasons people make purchases in the marketplace. Points Earned: 0.6/0.6 Correct Answer(s): B

3.

Refer to Figure 4.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, what is the market quantity demanded at a price of $3? A) 6 B) 9 C) 15 D) 20 Points Earned: 0.6/0.6 Correct Answer(s): D

4. Refer to Figure 4.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, if the market quantity demanded is 15, the price must be A) $0. B) $6. C) $9. D) $15. Points Earned: 0.0/0.6 Correct Answer(s): B

5. The Law of Supply states that A) producers should only produce what they can sell. B) producers should only sell the items when the price is right. C) there is a positive relationship between price and quantity supplied, ceteris paribus. D) producers are legally required to make necessary items available in the marketplace. Points Earned: 0.6/0.6 Correct Answer(s): C

6. Quantity of Frozen Latte-On-A-Stick Supplied Price Flo's Supply Rita's Supply 1

0 0 2 0 3 3 4 6 4 9 9 5 15 12 Table 4.1 Refer to Table 4.1, which shows Flo's and Rita's individual supply schedules for frozen latte-on-a-stick. Assuming Flo and Rita are the only suppliers in the market, what is the market quantity supplied at a price of $2? A) 0 B) 2 C) 3 D) 5 Points Earned: 0.6/0.6 Correct Answer(s): C

7. Refer to Table 4.1, which shows Flo's and Rita's individual supply schedules for frozen latte-on-a-stick. Assuming Flo and Rita are the only suppliers in the market, if the market quantity supplied is 18, the price must be A) $2. B) $3. C) $4. D) $5. Points Earned: 0.6/0.6 Correct Answer(s): C

8.

Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $7, there is an A) excess demand of 8 t-shirts. B) excess supply of 8 t-shirts. C) excess demand of 10 t-shirts. D) excess supply of 10 t-shirts. Points Earned: 0.6/0.6 Correct Answer(s): A

9. Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $15, we would expect that A) demand will decrease until quantity demanded equals quantity supplied.

B) supply will increase until quantity demanded equals quantity supplied. C) price will decrease until quantity demanded equals quantity supplied. D) there will be no change since the market is in equilibrium. Points Earned: 0.0/0.6 Correct Answer(s): C

10. Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $10, we would expect that A) demand will decrease until quantity demanded equals quantity supplied. B) supply will increase until quantity demanded equals quantity supplied. C) price will increase until quantity demanded equals quantity supplied. D) there will be no change since the market is in equilibrium. Points Earned: 0.6/0.6 Correct Answer(s): D

11. Suppose that a market for a product is in equilibrium at a price of $5 per unit. At any price above $5 per unit A) there will be an excess demand for the product. B) there will be an excess supply of the product. C) the quantity supplied of the product will be less than the quantity demanded of that product. D) there will be a shortage of that product. Points Earned: 0.0/0.6 Correct Answer(s): B

12.

Figure 4.3 illustrates the demand for tacos. A decrease in the demand for tacos is represented by the movement from A) point a to point b. B) point c to point b. C) D2 to D1. D) D0 to D1. Points Earned: 0.0/0.6 Correct Answer(s): C

13. Figure 4.3 illustrates the demand for tacos. Assume tacos are a normal good. An increase in income would bring about a movement from A) point a to point b. B) point c to point b. C) D2 to D1. D) D0 to D1. Points Earned: 0.6/0.6 Correct Answer(s): D

14. Figure 4.3 illustrates the demand for tacos. Assume that tacos and beer are complements. A decrease in the price of beer would bring about a movement from

A) point a to point c. B) point c to point a. C) D2 to D0. D) D0 to D2. Points Earned: 0.6/0.6 Correct Answer(s): D

15. Figure 4.3 illustrates the demand for tacos. Assume that tacos and burritos are substitutes. A decrease in the price of burritos would bring about a movement from A) point a to point c. B) point c to point b. C) D2 to D0. D) D1 to D2. Points Earned: 0.0/0.6 Correct Answer(s): C

16. Figure 4.3 illustrates the demand for tacos. An increase in the number of consumers in the market would bring about a movement from A) point a to point b. B) point c to point a. C) D2 to D1. D) D0 to D2. Points Earned: 0.6/0.6 Correct Answer(s): D

17. Figure 4.3 illustrates the demand for tacos. An increase in price of tacos would bring about a movement from A) point a to point c. B) point c to point a. C) D2 to D0. D) D0 to D1. Points Earned: 0.0/0.6 Correct Answer(s): B

18. Figure 4.3 illustrates the demand for tacos. A successful advertising campaign to sell tacos would bring about a movement from A) point a to point b. B) point c to point b. C) D2 to D1. D) D0 to D1. Points Earned: 0.6/0.6 Correct Answer(s): D

19. Figure 4.3 illustrates the demand for tacos. If people expect the price of tacos to decrease in the near future, this would most likely bring about a movement from A) point a to point b.

B) point c to point a. C) D2 to D0. D) D0 to D1. Points Earned: 0.0/0.6 Correct Answer(s): C

20. Landon demands more sushi as his income increases. From this, we can conclude that, for Landon A) sushi is a normal good. B) sushi is an inferior good. C) sushi is a complementary good. D) sushi is a substitute good. Points Earned: 0.0/0.6 Correct Answer(s): A

21. Assume that tortilla chips and salsa are complements. When the price of tortilla chips decreases A) the demand for salsa increases. B) the demand for salsa decreases. C) the supply of salsa decreases. D) the demand for tortilla chips decreases. Points Earned: 0.6/0.6 Correct Answer(s): A

22. Suppose that in October the price of a cup of cafe latte was $2.50 and 400 lattes were consumed. In November the price of a latte was $2.00 and 300 lattes were consumed. What might have caused this change? A) The price of tea (a substitute for cafe lattes. fell. B) The price of tea (a substitute for cafe lattes. rose. C) The price of coffee beans (an input of production of cafe lattes. rose. D) The price of coffee beans (an input of production of cafe lattes. fell. Points Earned: 0.6/0.6 Correct Answer(s): A

23. Suppose that consumers expect the price of a product to decrease in the future. The result is that A) the current demand for the product increases. B) the current demand for the product decreases. C) the current supply of the product increases. D) the current supply of the product decreases. Points Earned: 0.0/0.6 Correct Answer(s): B

24.

Figure 4.4 illustrates the supply of tacos. An increase in the supply of tacos is represented by a movement from A) point a to point b. B) point c to point b.

C) S2 to S1. D) S0 to S1. Points Earned: 0.0/0.6 Correct Answer(s): D

25. Figure 4.4 illustrates the supply of tacos. An increase in the price of ground beef, which is used to make tacos, would most likely cause a movement from A) point a to point b. B) point c to point b. C) S2 to S1. D) S0 to S1. Points Earned: 0.0/0.6 Correct Answer(s): C

26. Figure 4.4 illustrates the supply of tacos. A technological advancement, which makes tacos cheaper to produce, would most likely cause a movement from A) point a to point c. B) point c to point a. C) S2 to S0. D) S0 to S2. Points Earned: 0.0/0.6 Correct Answer(s): D

27. Figure 4.4 illustrates the supply of tacos. An increase in the number of Mexican food producers would most likely cause a movement from A) point a to point c. B) point c to point a. C) S2 to S0. D) S0 to S2. Points Earned: 0.0/0.6 Correct Answer(s): D

28. Figure 4.4 illustrates the supply of tacos. If the government offered a subsidy to Mexican restaurants for each taco they produce, this would most likely cause a movement from A) point a to point c. B) point c to point b. C) S2 to S1. D) S0 to S1. Points Earned: 0.0/0.6 Correct Answer(s): D

29.

Figure 4.5 illustrates a set of supply and demand curves for hamburgers. An increase in supply and an increase in quantity demanded are represented by a movement from A) point a to point b

B) point a to point c. C) point d to point b. D) point c to point d. Points Earned: 0.0/0.6 Correct Answer(s): A

30. Figure 4.5 illustrates a set of supply and demand curves for hamburgers. A decrease in supply and an increase in demand are represented by a movement from A) point d to point c. B) point c to point b. C) point b to point d. D) point c to point a. Points Earned: 0.0/0.6 Correct Answer(s): D

31. Figure 4.5 illustrates a set of supply and demand curves for hamburgers. An increase in supply and a decrease in demand are represented by a movement from A) point d to point b. B) point d to point a. C) point a to point c. D) point b to point d. Points Earned: 0.6/0.6 Correct Answer(s): C

32. Figure 4.5 illustrates a set of supply and demand curves for hamburgers. A decrease in supply and a decrease in demand are represented by a movement from A) point c to point a. B) point b to point d. C) point d to point a. D) point a to point b. Points Earned: 0.0/0.6 Correct Answer(s): B

33. When demand increases and the demand curve shifts to the right, equilibrium price ________ and equilibrium quantity ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases Points Earned: 0.6/0.6 Correct Answer(s): A

34. When supply decreases and the supply curve shifts to the left, equilibrium price ________ and equilibrium quantity ________. A) increases; increases B) increases; decreases

C) decreases; increases D) decreases; decreases Points Earned: 0.0/0.6 Correct Answer(s): B

35. Suppose that a new study is released stating that consumption of orange juice (a substitute for apple juice) reduces the risk of cancer, and a major freeze destroys half of the country's apple crop. What happens to the price and quantity of apple juice? A) The price of apple juice might rise or fall and the quantity of apple juice falls. B) The price of apple juice might rise or fall and the quantity of apple juice rises. C) The price of apple juice falls and the quantity of apple juice falls. D) The quantity of apple juice might rise or fall, and the price of apple juice rises. Points Earned: 0.0/0.6 Correct Answer(s): A

36. Bananas and apples are substitutes. When the price of bananas falls, and a technological advance in apple production occurs at the same time A) the equilibrium price of apples rises and the equilibrium quantity of apples falls. B) the equilibrium price of apples rises and the equilibrium quantity of apples rises. C) the equilibrium price of apples rises and the equilibrium quantity of apples might rise or fall. D) the equilibrium price of apples falls and the equilibrium quantity of apples might rise or fall. Points Earned: 0.0/0.6 Correct Answer(s): D

37. Summary of the article:Chevron Reports Major Oil Field FindBy Elizabeth DouglassLos Angeles TimesSeptember 6, 2006On September 5, 2006 Chevron Corp. and its partners Devon Energy Corp. of Oklahoma and Norways Statoil announced the successful test-drilling of a potentially huge new oil source 270 miles southwest of New Orleans, in the deep waters of the Gulf of Mexico. From a test well extending more than 5 miles in depth, Chevron was able to extract 6000 barrels of high-quality crude oil per day. With estimates of anywhere from 3 billion to 15 billion barrels of crude oil beneath the Gulf of Mexico, Chevrons discovery could rank as the largest crude oil find in nearly 40 years. Although steady production would still be several years off, this discovery could eventually yield 800,000 barrels of crude oil per day, more than 10 percent of total U.S. production.Improved technology has allowed companies like Chevron to search for oil in places where it would have been impossible only 20 years ago. While experts say the oil will still be expensive to extract and could take years to accomplish, the development and use of deepwater drilling technology has shown that oil can be retrieved from such previously unreachable depths and in commercially viable quantities.The discovery comes at a time when U.S. and world demand for oil is increasing, and production from U.S. oil fields has slowed considerably.Technological advancement in oil exploration will, ceteris paribus, ________ the supply of oil, shifting the supply curve ________. A) decrease; down and to the right B) decrease; up and to the left C) increase; down and to the right D) increase; up and to the left Points Earned: 0.6/0.6 Correct Answer(s): C

38. If the supply of usable crude oil increases with the discovery of the new source beneath the Gulf of Mexico, ceteris paribus, the

A) equilibrium quantity of crude oil will decrease. B) equilibrium price of crude oil will decrease. C) demand for crude oil will increase. D) demand for crude oil will decrease. Points Earned: 0.6/0.6 Correct Answer(s): B

39. The demand for oil in the U.S. is increasing at a time when production from U.S. oil fields has slowed. In the U.S. crude oil market, ceteris paribus,this would definitely cause equilibrium A) price to increase. B) price to decrease. C) quantity to increase. D) quantity to decrease. Points Earned: 0.6/0.6 Correct Answer(s): A

40. If, in addition to the technological advancements in the drilling of crude oil, consumers were replacing their gas-guzzling cars and trucks with electric hybrid vehicles, then in the market for crude oil, ceteris paribus, this would definitely cause equilibrium A) price to increase. B) price to decrease. C) quantity to increase. D) quantity to decrease. Points Earned: 0.6/0.6 Correct Answer(s): B 1. The circular flow is used to make the point that A) rising prices never occur during times of unemployment. B) unemployment only occurs during a recession. C) production generates income. D) households purchase factors of production from firms. Points Earned: 0.4/0.4 Correct Answer(s): C

2. If an economy produced 60 pounds of sushi at $12 per pound and 15 gallons of sake at $30 per gallon, the total value of these goods and services would be A) $450. B) $720. C) $1,170. D) $2,700. Points Earned: 0.4/0.4 Correct Answer(s): C

3. We measure gross domestic product by multiplying the quantities of goods by their prices because it allows us to A) express the values of products in a common unit of measurement. B) correct for inflation.

C) directly compare the output of one economy to that of another. D) calculate the total number of units of goods produced in an economy. Points Earned: 0.0/0.4 Correct Answer(s): A

4. A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count A) the raw wool, the yarn and the sweaters. B) only the yarn and the sweaters. C) only the sweaters. D) only the raw wool and the yarn. Points Earned: 0.4/0.4 Correct Answer(s): C

5. How does real gross domestic product (GDP) differ from nominal GDP? A) Nominal GDP controls for price changes, while real GDP does not. B) Real GDP controls for price changes, while nominal GDP does not. C) Nominal GDP can be used to directly compare the amount of output produced from year to year, while real GDP cannot be used for such comparison. D) There is no difference between nominal GDP and real GDP. Points Earned: 0.4/0.4 Correct Answer(s): B

6. Which of the following is an example of a consumption expenditure? A) the construction of a new public library B) the purchase of a ticket to a New Orleans Saints game C) the purchase of a new fire truck D) the salary paid to the mayor of Denver Points Earned: 0.4/0.4 Correct Answer(s): B

7. For the purpose of GDP accounting, consumption expenditures include A) only nondurable goods. B) only durable goods. C) both nondurable goods and services. D) durable goods, nondurable goods, and services. Points Earned: 0.4/0.4 Correct Answer(s): D

8. Suppose that a sporting goods store had $800 of golf balls on its shelves at the beginning of 2010 and $1,300 at the end of 2010. The amount of inventory investment included in GDP would be A) $500. B) $800. C) $1,300. D) $2,100.

Points Earned: 0.0/0.4 Correct Answer(s): A

9. Which of the following is NOT a component of private investment, for purposes of GDP accounting? A) newly produced housing B) additions to firms' stock of inventories C) purchases by firms of used machinery D) newly built factories Points Earned: 0.0/0.4 Correct Answer(s): C

10. Depreciation is A) what is left over from total new private investment after use for a year. B) the total amount of private investment purchases, whether new or previously existing. C) the total amount of new private investment purchases. D) the wear and tear on private investment. Points Earned: 0.4/0.4 Correct Answer(s): D

11. If in the third quarter of 2010 total investment spending was $4,768 billion and depreciation was $3,292 billion, then the amount counted in GDP, which is known as gross investment, would be A) $1,476 billion. B) $3,292 billion. C) $4,768 billion. D) $8,060 billion. Points Earned: 0.4/0.4 Correct Answer(s): C

12. Transfer payments are excluded from government purchases in GDP accounting because A) they are difficult to measure. B) they are a reward to individuals who have been productive their entire lives. C) they are already included as part of investment. D) nothing is being produced in return for the payment. Points Earned: 0.4/0.4 Correct Answer(s): D

13. Exports ________ GDP and imports ________ GDP. A) increase; decrease B) decrease; increase C) increase; increase D) decrease; decrease Points Earned: 0.4/0.4 Correct Answer(s): A

14.

The GDP equation is A) Y = C + I + G + NX. B) Y = C - I - G - NX. C) C + I = G + NX. D) C + I = Y + G + NX. Points Earned: 0.4/0.4 Correct Answer(s): A

15. Which of the following is a category of national income? A) net interest B) corporate profits C) rental income D) all of the above Points Earned: 0.4/0.4 Correct Answer(s): D

16. If Cassie's Coffee House purchases 42 cents worth of ingredients and spends 28 cents on wages per cup of coffee to produce an 89 cent cup of coffee, then Cassie's Coffee House's value added per cup of coffee is A) 19 cents. B) 28 cents. C) 47 cents. D) 61 cents. Points Earned: 0.0/0.4 Correct Answer(s): C

17. In the expanded circular flow diagram, the government supplies A) goods and services to the product market. B) factors of production to the factor market. C) goods and services to households. D) factors of production to firms. Points Earned: 0.4/0.4 Correct Answer(s): A

18. If the economy grew at 7 percent from 2009 to 2010 and real GDP was 400 in 2009, what was real GDP in 2010? A) 393 B) 400 C) 407 D) 428 Points Earned: 0.0/0.4 Correct Answer(s): D

19. Scenario 1: Imagine that an economy produces two goods, flashlights and fishing lures. In 2009, the economy produced 70 flashlights and 40 fishing lures, and the prices of flashlights and fishing lures were $5 and $12,

respectively. In 2010, the economy produced 85 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $7 and $15, respectively. Based on the information in Scenario 1, nominal GDP in 2009 in this economy was: A) $830. B) B. $1,025. C) C. $1,090. D) D. $1,345. Points Earned: 0.4/0.4 Correct Answer(s): A

20. Based on the information in Scenario 1, real GDP in 2010 (in 2009 dollars) in this economy was A) $830. B) $1,025. C) $1,090. D) $1,345. Points Earned: 0.0/0.4 Correct Answer(s): B

21. Based on the information in Scenario 1, nominal GDP grew by about ________ percent from 2009 to 2010. A) 23 B) 31 C) 62 D) 162 Points Earned: 0.0/0.4 Correct Answer(s): C

22. When GDP is measured in "current prices" it is known as the A) real GDP. B) nominal GDP. C) real GNP. D) nominal GNP. Points Earned: 0.4/0.4 Correct Answer(s): B

23. Business cycles are A) movements in stock prices. B) the transfer of executives between firms. C) used to describe fluctuations in GDP. D) a description of the time required to bring a new product to market. Points Earned: 0.4/0.4 Correct Answer(s): C

24. When real GDP falls for two consecutive quarters the economy is in a A) depression.

B) recession. C) peak. D) trough. Points Earned: 0.4/0.4 Correct Answer(s): B

25. The common term for a severe recession is a A) downturn. B) depression. C) bottoming out. D) economic adjustment.

19. Using the information in Table 6.2, the Astro Price Index for 2009 is A) 87. B) 99. C) 126. D) 238. Points Earned: 0.0/0.4 Correct Answer(s): C

20. Using the information in Table 6.2, the inflation rate from 2009 to 2010 is about A) 4 percent. B) 5 percent. C) 17 percent. D) 31 percent. Points Earned: 0.4/0.4 Correct Answer(s): A

21. Using the information in Table 6.2, the percent increase in prices over the two year period from 2008 to 2010 is approximately A) 26 percent. B) 31 percent. C) 38 percent. D) 98 percent. Points Earned: 0.4/0.4 Correct Answer(s): B

22. Suppose that a price index in Paraguay was 131 in 2009 and 152 in 2010. The inflation rate between those two years was A) 10.5 percent. B) 11.6 percent. C) 16 percent. D) 21 percent. Points Earned: 0.4/0.4 Correct Answer(s): C

23. Economists call the physical cost of changing prices: A) the cost of doing business. B) menu costs. C) inflationary sufferage. D) increasing profits. Points Earned: 0.4/0.4 Correct Answer(s): B

24. If you negotiated a salary based on an anticipated inflation rate of 4 percent, and the actual inflation rate turned out to be 6 percent A) the purchasing power of your real wages would be more than you anticipated. B) your employer would have gained at your expense. C) your real wage will increase, but your nominal wage will decrease. D) the purchasing power of your wages will not change, since purchasing power is based on your nominal wage. Points Earned: 0.0/0.4 Correct Answer(s): B

25. If you take out a bank loan prior to unanticipated inflation A) it will be harder for you to repay the loan because of the inflated dollar. B) you will gain at the expense of your bank. C) your bank will gain at your expense. D) neither you nor your bank will be affected, because the loan was made prior to the inflation. B

An increase in a country's capital stock relative to its work force is known as A) capital deepening. B) capital growth. C) capital improvement. D) capital augmentation. Points Earned: 0.0/0.5 Correct Answer(s): A

2. Technological progress occurs when the economy gets more output A) without any more capital or labor. B) by using more capital per worker. C) by using more capital but not more workers. D) by using more labor but not more capital. Points Earned: 0.0/0.5 Correct Answer(s): A

3. If the growth rate for GDP was 9 percent and GDP in year 1 was 100, then GDP in year 2 would be A) 90. B) 109. C) 190.

D) 199. Points Earned: 0.5/0.5 Correct Answer(s): B

4. Suppose that real GDP starts at 200 and grows at a rate of 9 percent per year for two years. In the third year real GDP would be A) 183.49. B) 236. C) 237.62. D) 239.24. Points Earned: 0.0/0.5 Correct Answer(s): C

5. When comparing the measure of goods and services of one country to that of another, economists generally compare A) the real GDP. B) the real GDP per capita. C) the real GDP and net exports. D) the real GDP and the labor force. Points Earned: 0.5/0.5 Correct Answer(s): B

6. Nations with low levels of GDP per capita may converge to richer nations if A) nations with high levels of income experience a continuously increasing growth rate. B) nations with lower levels of income grow more quickly than those with higher levels of income. C) nations with lower levels of income spend less on investment. D) nations with lower levels of income grow more slowly than those with higher levels of income. Points Earned: 0.0/0.5 Correct Answer(s): B

7. All of the following can cause technological progress EXCEPT A) research and development. B) education. C) free trade. D) population decreases. Points Earned: 0.5/0.5 Correct Answer(s): D

8. It is possible for an economy to become more productive and per-capita output to increase if A) new ideas are generated. B) inventions are developed. C) technology is improved. D) all of the above Points Earned: 0.5/0.5 Correct Answer(s): D

9. The process by which monopoly profits leads to technological progress in known as A) imperfect competition. B) destructive creation. C) creative destruction. D) economies of scale. Points Earned: 0.0/0.5 Correct Answer(s): C

10. All of the following encourage increases in technological progress EXCEPT A) larger markets through free trade. B) the possibility of monopoly profits. C) the ability to patent a new invention. D) closed economies. Points Earned: 0.5/0.5 Correct Answer(s): D

11. In developing countries, the highest returns are from investing in A) transportation systems. B) sanitation systems. C) education. D) defense. Points Earned: 0.5/0.5 Correct Answer(s): C

12. According to human capital theory, all of the following help make workers more productive EXCEPT A) education. B) health and fitness. C) skills. D) increased unemployment benefits. Points Earned: 0.5/0.5 Correct Answer(s): D

13. World Bank: Youth Key to Economic Growth Townhall.com September 16, 2006 In a report released in September, 2006, the World Bank announced that education, health care and job training for young people are keys to generating economic growth in developing nations. World Bank chief economist Francois Bourguignon emphasized the importance of investing in youth, stating that it is easier to develop skills while young, and the need to seize the demographic window of opportunity. Approximately 1.3 billion young people live in developing countries, and nearly half of the worlds unemployed people are youth. In Eastern and Central Asia and in Eastern Europe, surveys of young people show that access to jobs is a major concern. With a global estimate of 130 million people between the ages of 15 and 24 unable to read or write, and a projected need for 100 million new jobs over the next fifteen years in the Middle East and North Africa alone, education and job training are seen as vital for economic growth.

The report states that firms in developing nations including Algeria, Bangladesh and Estonia report poor education and poor work skills as significant obstacles to their operations. Investing in youth by giving them opportunities at education and job training, as well as allowing them to engage in civic and social activities, are needed incentives to improve the standard of living and future prospects of youth in developing nations, and in doing so, enable these nations to generate and sustain economic growth. Investing in youth is a key to economic growth for developing nations. The process by which poorer nations can close the gap between their level of GDP per capita and the GDP per capita of richer nations is called A) the virtuous circle. B) convergence. C) growth accounting. D) opportunity cost. Points Earned: 0.5/0.5 Correct Answer(s): B

14. The World Bank calls for improvements in education and job training skills to promote economic growth in developing nations. Increased knowledge and skills are a part of A) capital deepening. B) market scale. C) the rule of 70. D) human capital. Points Earned: 0.5/0.5 Correct Answer(s): D

15. The World Bank recommends that developing nations invest in education and job training to promote A) research and development funding. B) economic growth. C) property rights. D) the law of diminishing returns. Points Earned: 0.0/0.5 Correct Answer(s): B

16. Economic growth is severely impeded in economies A) with a lack of clear property rights. B) with a strong central government. C) with high rates of convergence. D) which encourage induced innovation. Points Earned: 0.0/0.5 Correct Answer(s): A

17. When one company is the sole seller of certain products in a market, it is called a A) government exclusive. B) monopoly. C) manipulation of the market. D) conglomerate. Points Earned: 0.5/0.5 Correct Answer(s): B

18. To reduce labor costs, companies often invent machines and methods to produce products and reduce the amount of labor required. This is called A) downsizing. B) induced innovation. C) failed labor utilization. D) anti-union. Points Earned: 0.5/0.5 Correct Answer(s): B

19. Knowledge and skills are part of ________ in an economy. A) educational functions B) human capital C) market growth D) innovation Points Earned: 0.5/0.5 Correct Answer(s): B

20. Using the rule of 70, if the GDP per capita growth rate in the United States is 3.5 percent, standards of living double every A) 20 years. B) 24.5 years. C) 35 years. D) 70 years. Points Earned: 0.5/0.5 Correct Answer(s): A The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as A) Keynesian economics. B) investment cycle theory. C) real business cycle theory. D) technology shock theory. Points Earned: 0.0/0.5 Correct Answer(s): A

2. The mechanism that normally coordinates what goes on in an economy is the A) government. B) price system. C) stock market. D) Federal Reserve. Points Earned: 0.5/0.5 Correct Answer(s): B

3. Which of the following is a problem with the price system that can lead to a breakdown in the coordination of economic activity?

A) The price system works silently in the background. B) Prices can be slow to adjust. C) Prices may be flexible. D) all of the above Points Earned: 0.0/0.5 Correct Answer(s): B

4. Workers often have ________ contracts and so their wages are ________. A) long-term; flexible B) long-term; sticky C) short-term; sticky D) short-term; flexible Points Earned: 0.5/0.5 Correct Answer(s): B

5. Workers whose wages tend to adjust slowly include all of the following EXCEPT A) union workers. B) unskilled, low wage workers. C) those with long-term contracts. D) movie stars, professional athletes, and rock stars. Points Earned: 0.0/0.5 Correct Answer(s): D

6. Suppose the demand for hot dogs decreases. In the short run, firms that produce hot dogs will experience a fall in prices, which will induce them to A) increase production and increase the number of workers. B) decrease production and increase the number of workers. C) decrease production and reduce the number of workers. D) increase production and reduce the number of workers. Points Earned: 0.5/0.5 Correct Answer(s): C

7. The short run in macroeconomics is the period in which A) prices change significantly. B) no contracts or agreements exist to fix prices. C) demand determines output. D) the demand curve is vertical. Points Earned: 0.5/0.5 Correct Answer(s): C

8. Aggregate demand refers to the relationship between A) prices and the quantity of a good supplied. B) the price level and the quantity of real GDP supplied. C) prices and the quantity of a good demanded. D) the price level and the quantity of real GDP demanded. Points Earned: 0.5/0.5

Correct Answer(s):

9. The increase in spending that occurs because the real value of money increases when the price level falls is known as the A) interest rate effect. B) international trade effect. C) price effect. D) wealth effect. Points Earned: 0.0/0.5 Correct Answer(s): D

10. The real value of money ________ as the price level falls. A) remains the same B) decreases C) increases D) none of the above Points Earned: 0.5/0.5 Correct Answer(s): C

11. When interest rates are lower, consumers and companies are able to borrow money cheaply in order to make major purchases. As a result, the demand for goods in an economy will generally A) decrease. B) increase. C) remain the same. D) be minimally affected. Points Earned: 0.5/0.5 Correct Answer(s): B

12. When the price level is low and the demand for domestic goods increases, how does it affect international trade? A) Net exports will decrease. B) Net exports will increase. C) Prices of all international goods will decrease. D) Prices of all international goods will increase. Points Earned: 0.5/0.5 Correct Answer(s): B

13. Which of the following does NOT decrease aggregate demand in the United States? A) a decrease in the price of oil B) a decrease in GDP in Germany C) a decrease in government spending D) a decrease in the supply of money Points Earned: 0.0/0.5 Correct Answer(s): A

14. Which of the following would cause an increase in aggregate demand in the short run? A) an increase in the supply of money B) a decrease in the price level C) an increase in taxes D) a crop failure Points Earned: 0.0/0.5 Correct Answer(s): A

15. Which of the following would cause a decrease in aggregate demand? A) a rise in wages B) an increase in prices C) an increase in the money supply D) a fall in investor confidence Points Earned: 0.0/0.5 Correct Answer(s): D

16.

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD0 could be caused by a(n) A) increase in the money supply. B) decrease in taxes. C) increase in the price level. D) decrease in government spending. Points Earned: 0.5/0.5 Correct Answer(s): D

17. Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD2 could be caused by a(n) A) increase in the money supply. B) increase in taxes. C) increase in the price level. D) decrease in government spending. Points Earned: 0.5/0.5 Correct Answer(s): A

18. Figure 9.1 shows three aggregate demand curves. A movement from curve AD0 to curve AD1 could be caused by a(n) A) decrease in the money supply. B) decrease in taxes. C) decrease in the price level. D) decrease in government spending. Points Earned: 0.5/0.5 Correct Answer(s): B

19. Figure 9.1 shows three aggregate demand curves. A movement from point b to point c could be caused by a(n) A) increase in the money supply. B) decrease in taxes. C) decrease in the price level. D) decrease in government spending. Points Earned: 0.5/0.5 Correct Answer(s): C

20. Summary of the article:U.S. Economy: New-Home Sales Decline to Record Low (Update 1.By Bob WillisBloomberg BusinessweekFebruary 24, 2010In January 2010, new home sales in the United States dropped to their lowest level on record, as homebuilders faced significant competition from foreclosures of existing homes. The decline in sales occurred despite projections made just one month earlier that new home sales would rise in January. The sales decline reemphasized Fed Chairman Ben Bernanke's comments regarding the slow recovery of the economy and the need for continued low interest rates. New home sales declined in the Northeast, South, and West, with only the Midwest showing a small gain. For the entire nation, the median price of a new home fell to its lowest level since December 2003. Based on the sales rate in January 2010, the country had a 9.1-month inventory of homes, its highest rate since May 2009.The decrease in spending on new homes will, other things equal, A) increase aggregate demand. B) decrease aggregate demand. C) increase aggregate supply. D) decrease aggregate supply. Points Earned: 0.0/0.5 Correct Answer(s): B

21. If home prices are falling, consumers purchasing a home will find their purchasing power of money has increased. This benefit to consumers is called the A) inflation effect. B) wealth effect. C) home equity effect. D) multiplier effect. Points Earned: 0.5/0.5 Correct Answer(s): B

22. The excess inventory of homes has put downward pressure on home prices. All else equal, in the market for homes, this means A) demand should increase. B) supply should decrease. C) quantity demanded should increase. D) quantity supplied should increase. Points Earned: 0.0/0.5 Correct Answer(s): C

23. When consumers spend and buy things regardless of their level of income, this is known as A) bad financial management. B) living the good life.

C) autonomous consumption spending. D) using credit to its maximum. Points Earned: 0.5/0.5 Correct Answer(s): C

24. When consumers realize additional income in a household and spend the additional monies, it is called the A) credit increase theory. B) marginal propensity to consume. C) aggregate demand factor. D) measure of individual wealth. Points Earned: 0.5/0.5 Correct Answer(s): B

25. If the government increases its purchases of goods and services by $3,000 and the MPC is 0.8, GDP and income will eventually increase by A) $2,400. B) $6,000. C) $15,000. D) $24,000. Points Earned: 0.0/0.5 Correct Answer(s): C

26. If the government increased its purchases of goods and services by $12,000, and this resulted in an eventual increase in GDP and income of $60,000, the MPS would be equal to A) 0.2. B) 0.4. C) 0.8. D) 2. Points Earned: 0.5/0.5 Correct Answer(s): A

27. If the MPS = 0.2, the multiplier would be A) 0.5. B) 1. C) 2. D) 5. Points Earned: 0.0/0.5 Correct Answer(s): D

28. To determine the price level and real GDP, the aggregate demand and aggregate supply must A) be considered separately. B) intersect. C) be disregarded. D) be considered as a multiplier. Points Earned: 0.0/0.5 Correct Answer(s): B

29. Assuming a long-run aggregate supply curve, an increase in the money supply results in ________ in output and ________ in prices. A) a decrease; a decrease B) an increase; no change C) a decrease; no change D) no change; an increase Points Earned: 0.0/0.5 Correct Answer(s): D

30. An implication of the long-run aggregate supply curve is that continuous increases in the money supply will result in continuous A) increases in prices. B) decreases in output and prices. C) decreases in output. D) increases in output and prices. Points Earned: 0.5/0.5 Correct Answer(s): A

31. Output in the long run is determined by which of the two following factors when an economy operates at full employment? A) capital and supply B) imports and exports C) capital and labor D) the "real" GDP and purchases Points Earned: 0.0/0.5 Correct Answer(s): C

32.

Refer to Figure 9.2. A movement from point a to point c could be caused by a(n) A) increase in government spending. B) decrease in the price of oil. C) increase in taxes. D) increase in short-run aggregate supply. Points Earned: 0.0/0.5 Correct Answer(s): A

33. Refer to Figure 9.2. A movement from point d to point b could be caused by a(n) A) increase in government spending. B) increase in the price of oil. C) increase in taxes. D) decrease in short-run aggregate supply. Points Earned: 0.5/0.5 Correct Answer(s): C

34. Refer to Figure 9.2. A movement from point d to point c could be caused by a(n) A) increase in government spending. B) increase in the price of oil. C) increase in taxes. D) increase in short-run aggregate supply. Points Earned: 0.0/0.5 Correct Answer(s): B

35. Refer to Figure 9.2. A movement from point a to point d could be caused by a simultaneous ________ and ________. A) increase in government spending; decrease in the price of oil B) increase in taxes; increase in the price of oil C) decrease in taxes; massive crop failure D) decrease in the money supply; decrease in government spending Points Earned: 0.0/0.5 Correct Answer(s): A

36. Refer to Figure 9.2. A movement from point c to point b could be caused by a simultaneous ________ and ________. A) decrease in government spending; decrease in the price of oil B) decrease in taxes; increase in the price of oil C) increase in taxes; decrease in government spending D) increase in government spending; increase in the money supply Points Earned: 0.0/0.5 Correct Answer(s): A

37. Refer to Figure 9.2. A movement from point d to point a could be caused by a simultaneous ________ and ________. A) decrease in the money supply; increase in the price of oil B) increase in the money supply; massive crop failure C) decrease in taxes; decrease in the money supply D) decrease in government spending; decrease in the price of oil Points Earned: 0.0/0.5 Correct Answer(s): A

38. Refer to Figure 9.2. A movement from point b to point c could be caused by a simultaneous ________ and ________. A) increase in the money supply; increase in the price of oil B) decrease in taxes; decrease in the price of oil C) increase in taxes; decrease in government spending D) increase in the price of oil; massive crop failure Points Earned: 0.0/0.5 Correct Answer(s): A

39.

A supply shock is an ________ event that shifts the aggregate ________ curve. A) internal; supply B) external; supply C) internal; demand D) external; demand Points Earned: 0.0/0.5 Correct Answer(s): B

40. When there is a recession (a fall in output. and prices are increasing, and this situation is caused by adverse supply shocks, the term economists use to describe it is A) aggregate shifts. B) stagnation. C) inflation. D) stagflation. Points Earned: 0.0/0.5 Correct Answer(s): D

1. What are the two tools of fiscal policy that governments can use to stabilize an economy? A) government spending and technology improvements B) government spending and taxation C) taxation and controlling imports D) taxation and controlling exports Points Earned: 0.5/0.5 Correct Answer(s): B

2. Contractionary policies are policies designed to A) increase the level of real GDP. B) reduce the level of real GDP. C) increase government spending. D) increase the federal deficit. Points Earned: 0.0/0.5 Correct Answer(s): B

3. Policies taken to move the economy closer to potential output A) must necessarily be expansionary policies. B) must necessarily be contractionary policies. C) are called stabilization policies. D) are lagging policies or automatic policies. Points Earned: 0.5/0.5 Correct Answer(s): C

4. Why are transfer payments not included in GDP? A) The amount is too low to have any effect. B) Unemployment varies and can't be tracked. C) They do not represent payments to those who contributed resources to currently produced goods or services.

D) Money companies receive from the government isn't reported. Points Earned: 0.5/0.5 Correct Answer(s): C

5. Which of the following is an example of government discretionary spending? A) Social Security retirement payments B) Medicare benefits for the elderly C) defense spending D) net interest paid on government debt held by the public Points Earned: 0.5/0.5 Correct Answer(s): C

6. Does the term "mandatory spending" mean that spending must go on forever? A) Yes, once appropriated, spending is indefinite. B) No, once appropriated, spending is for the life of the program only or until it changes. C) Yes, the laws which authorized this spending cannot be changed. D) Yes, Congress has no right to change these spending programs. Points Earned: 0.0/0.5 Correct Answer(s): B

7. Who sets the rules for entitlements when spending is authorized under this category? A) the President B) the agency involved C) the Congress when it appropriates the spending D) each individual state Points Earned: 0.5/0.5 Correct Answer(s): C

8. Recall the Application about how society will cope with increased demands for entitlement programs to answer the following question(s.) This Application addresses the impact of increasing life expectancy and aging populations on the costs of government entitlement programs such as Social Security, Medicare and Medicaid, and examines several possible solutions to the potential problem. According to this Application, how will an increase in government spending on entitlement programs affect the macroeconomy? A) It will increase aggregate demand. B) It will decrease aggregate demand. C) It will increase aggregate supply. D) It will decrease aggregate supply. Points Earned: 0.0/0.5 Correct Answer(s): A

9. According to this Application, one solution proposed to deal with the rising expenses of government entitlement programs is to raise taxes. An increase in taxes to help cover the rising expenses of entitlement programs would

A) increase aggregate demand, shifting the AD curve to the right. B) increase aggregate demand, shifting the AD curve to the left. C) decrease aggregate demand, shifting the AD curve to the right. D) decrease aggregate demand, shifting the AD curve to the left. Points Earned: 0.5/0.5 Correct Answer(s): D

10. Summary of the article: Obama's economic recovery plan not a hit with economists By Paul Wiseman and Richard Wolf USA Today September 8, 2010 In an attempt to boost the struggling economy, President Obama proposed a new $180 billion package of tax breaks and transportation projects. Obama's proposal includes the following: -Allowing businesses to deduct from their taxes 100 percent of investments in new equipment through 2011, giving businesses an additional $200 billion right away and costing the Treasury only $30 billion over the next ten years due to depreciation write-offs. -Expanding the business tax credit for research and development and making this credit permanent, at an estimated cost of $100 billion over ten years. -Construction spending of $50 billion to build or repair roads, rail lines and airport runways. Some economists are not convinced that these proposals will create any dramatic improvements in the economy, claiming that they will not result in the creation of many new jobs and that tax breaks on payroll taxes may be more effective than credits for research and development. Economists Mark Zandi and Alan Blinder did say, however, that construction spending on infrastructure eventually generates $1.57 in growth for every dollar spent, but the benefit to the economy will not be immediate. President Obama will need to get Congressional approval to enact his proposed measures to boost the economy. The time involved to formulate and get approval for these policies are called: A) inside lags. B) outside lags. C) automatic stabilization. D) crowding in. Points Earned: 0.5/0.5 Correct Answer(s): A

11. Even if the Obama administration succeeds with its effort to gain Congressional approval for its proposals, it will still take time for these policy to actually work. The time it takes for these policies to work is known as A) inside lags. B) outside lags. C) automatic stabilization. D) crowding out. Points Earned: 0.5/0.5 Correct Answer(s): B

12.

The Obama proposal to lower business taxes by increasing tax deductions is an example of A) expansionary fiscal policy. B) contractionary fiscal policy. C) automatic stabilization. D) progressive taxation. Points Earned: 0.0/0.5 Correct Answer(s): A

13. The idea that a $1 increase in infrastructure spending will generate $1.57 in economic growth is a representation of A) the multiplier effect. B) an outside lag. C) an inside lag. D) an automatic stabilizer. Points Earned: 0.0/0.5 Correct Answer(s): A

14. Which of the following sources of revenue is used to fund government spending? A) interest B) taxation C) corporate contributions D) political party contributions Points Earned: 0.5/0.5 Correct Answer(s): B

15. Special taxes levied on earnings for Social Security and Medicare are called A) withholding tax on wages. B) social insurance tax. C) unfair tax on low-income families. D) an exception tax for corporations. Points Earned: 0.5/0.5 Correct Answer(s): B

16. A federal budget ________ occurs when the federal government spends more than it collects in taxes. A) surplus B) deficit C) equilibrium D) ceiling Points Earned: 0.5/0.5 Correct Answer(s): B

17. Suppose the government runs a budget surplus in a given year. It can reduce its overall federal debt by A) not buying anything on credit. B) buying back bond it sold to the public. C) forcing a change in net exports. D) increasing taxes on luxury items.

Points Earned: 0.0/0.5 Correct Answer(s): B

18. When the economy is producing its potential output, an increase in government spending must necessarily reduce some component of private spending. This phenomenon is called A) fiscal policy. B) crowding out. C) the multiplier effect. D) entitlement spending. Points Earned: 0.0/0.5 Correct Answer(s): B

19. Suppose the economy is operating below potential output. If policy makers try to avoid a budget deficit by raising taxes or reducing government spending, these actions would A) increase inflation. B) help pull an economy out of a depression. C) make a recession worse. D) negate the multiplier effect. Points Earned: 0.0/0.5 Correct Answer(s): C

20. Using expansionary policies to combat a recession would A) increase a budget deficit. B) increase a budget surplus. C) decrease discretionary spending. D) increase federal revenue. Points Earned: 0.0/0.5 Correct Answer(s): A 1. Which of the following is an example of an investment? A) A firm builds a new plant. B) A student attends college. C) The government builds a dam to have a source of hydroelectric power. D) all of the above Points Earned: 0.4/0.4 Correct Answer(s): D

2. The payoffs resulting from new investment A) occur in the future and are known with certainty. B) occur in the present and are known with certainty. C) occur in the future but are not known with certainty. D) depend only on current profits. Points Earned: 0.0/0.4 Correct Answer(s): C

3.

If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by A) decreasing their level of investment spending to decrease future production capacity. B) increasing their level of investment spending to increase current production capacity. C) increasing their level of investment spending to increase future production capacity. D) decreasing their level of investment spending to decrease current production capacity. Points Earned: 0.4/0.4 Correct Answer(s): A

4. Procyclical variables ________ during expansions and ________ during recessions. A) fall; fall B) rise; rise C) fall; rise D) rise; fall Points Earned: 0.0/0.4 Correct Answer(s): D

5. Compared to consumption, investment is a much ________ component of GDP and is much more ________. A) larger; stable B) smaller; stable C) larger; volatile D) smaller; volatile Points Earned: 0.0/0.4 Correct Answer(s): D

6. Optimistic investors tend to ________ their investment spending. A) reduce B) increase C) defer D) not change Points Earned: 0.4/0.4 Correct Answer(s): B

7. Suppose that a firm can invest $100 today in a project and receive $105 a year from today. There is no inflation, and the annual interest rate in the economy is 6%. The firm should A) invest in the project because the opportunity cost is less than the return on the investment. B) invest in the project because the opportunity cost is greater than the return on the investment. C) invest in the project because the opportunity cost is the same as the return on the investment. D) not invest in the project because the opportunity cost is greater than the return on the investment. Points Earned: 0.0/0.4 Correct Answer(s): D

8. If you want to purchase a new sailboat in two years for $9,000, how much would you presently need to have in your bank account to have $9,000 in two years? Assume your bank account pays 3 percent interest. A) $8,484

B) $8,613 C) $8,738 D) $8,822 Points Earned: 0.0/0.4 Correct Answer(s): A

9. Summary of the article:A latte today or $1 million tomorrowBy Scott BurnsMSN Moneymoneycentral.msn.comIs it possible to retire on income we invest by foregoing a daily cup of gourmet coffee? At a price of $3.50 per cup, the cup-a-day Starbucks latte drinker is spending $1277.50 per year on this frothy beverage. For a 25 year old, that daily latte habit could turn into close to a million dollars by retirement age. If the money was invested each year in a simple domestic stock index, it would earn a long-term average return of 10 percent per year. Assuming an average annual inflation rate of 3 percent and that the cost of latte would increase with inflation, this investment would be worth more than $167,000 in 25 years. By the end of 42 years, when the investor reached the age of 67, this daily latte investment would be worth $983, 614. If the investor was earning $30,000 a year at age 25 and her income rose with the inflation rate, her income at age 67 would be $103,821. If her post retirement cost of living was 75 percent of her income at age 67, this latte fund would amount to over 12.5 years of retirement income. Despite this creative retirement option, nearly 80 percent of all older Americans rely on Social Security for a majority of their income for retirement.This Application addresses the economic concept of A) deposit insurance. B) present value. C) financial intermediaries. D) retained earnings. Points Earned: 0.0/0.4 Correct Answer(s): B

10. Assume the investor gave up drinking latte for only one year and invested that money ($1,277.50) at the 10 percent interest rate. How much would the investment be worth in 42 years? A) $39,070 B) $42,584 C) $53,655 D) $69,960 Points Earned: 0.0/0.4 Correct Answer(s): D

11. By what percentage did this investor's income increase from age 25 to age 67? A) 74 percent B) 158 percent C) 246 percent D) 457 percent Points Earned: 0.0/0.4 Correct Answer(s): C

12. At the assumed annual inflation rate of 3 percent, approximately how much would the $3.50 latte cost in 42 years, when the investor reached the retirement age of 67? A) $9 B) $12 C) $16

D) $26 Points Earned: 0.0/0.4 Correct Answer(s): B

13. Suppose you have $400 to invest at a nominal interest rate of 7 percent, and the investment's term to maturity is 1 year. If the inflation rate is 2 percent, then the real return on your investment is approximately A) $8. B) $20. C) $28. D) $36. Points Earned: 0.0/0.4 Correct Answer(s): B

14. Borrowers and lenders make transactions based on the A) real interest rate. B) expected real interest rate. C) expected nominal interest rate. D) expected real interest rate less the expected rate of inflation. Points Earned: 0.0/0.4 Correct Answer(s): B

15. If a project costs $3,500 today and pays a return of $4,200 next year, what is the highest interest rate at which the project should be undertaken? A) 7 percent B) 14 percent C) 20 percent D) 70 percent Points Earned: 0.0/0.4 Correct Answer(s): C

16. As the real interest rate ________, the real investment spending ________. A) increases; increases B) decreases; decreases C) increases; decreases D) changes; does not change Points Earned: 0.4/0.4 Correct Answer(s): C

17. Financial intermediaries are A) salespersons who collect money from customers purchasing goods and services. B) firms that receive funds from savers and channel them to investors. C) firms that receive funds from investors and channel them to savers. D) persons that advise households on investment decisions. Points Earned: 0.4/0.4 Correct Answer(s): B

18. Assets that are easily convertible into money on short notice are referred to as being A) adaptable. B) liquid. C) diversified. D) durable. Points Earned: 0.0/0.4 Correct Answer(s): B

19. Financial intermediaries reduce risk by A) limiting the diversity of their investment portfolios. B) gaining expertise in evaluating and monitoring investments. C) investing in a large number of projects with independent returns. D) investing in a small number of projects with independent returns. Points Earned: 0.0/0.4 Correct Answer(s): C

20. Financial intermediaries reduce the costs of negotiation by A) pooling funds. B) gaining expertise in evaluating and monitoring investments. C) investing in a large number of projects with independent returns. D) investing in a small number of projects with independent returns. Points Earned: 0.4/0.4 Correct Answer(s): A

21. Which of the following activities does NOT diversify risk? A) writing earthquake insurance policies for the entire Western United States B) writing hurricane insurance policies only in Florida C) investing in real estate in various states across the United States. D) purchasing the stock of a variety of different companies Points Earned: 0.0/0.4 Correct Answer(s): B

22. In the United States, runs on banks are prevented because A) banks keep 100 percent of their deposits on hand. B) the government guarantees bank accounts for up to $250,000. C) banks have the option of denying depositors access to their funds. D) banks are forbidden to make unprofitable loans. Points Earned: 0.0/0.4 Correct Answer(s): B

23. The security provided by the federal government on money in banks is called A) social security. B) deposit insurance. C) investment equity.

D) a hedge fund. Points Earned: 0.4/0.4 Correct Answer(s): B

24. Runs on banks occur when A) banks make an unusually high number of profitable loans. B) depositors are confident that the bank will not go bankrupt. C) many depositors attempt to withdraw their funds simultaneously. D) banks keep 100 percent of their deposits on hand. Points Earned: 0.4/0.4 Correct Answer(s): C

25. What is most affected by the expected rate or pace of economic growth? A) unemployment B) investment spending C) government purchases D) exports Points Earned: 0.4/0.4 Correct Answer(s): B

1. The supply of money in the U.S. economy is determined primarily by A) decisions made by the Federal Reserve and the U.S. Treasury. B) the actions of the Federal Reserve and the banking system. C) consumers and the banking system. D) the demand for money in the economy. Points Earned: 0.0/0.5 Correct Answer(s): B

2. In the ________ increases in the supply of money will ________. A) short run; raise total demand and output B) long run; raise total demand and output C) long run; lead to lower prices D) short run; decrease total demand and output Points Earned: 0.0/0.5 Correct Answer(s): A

3. Money is A) anything that is regularly used and generally accepted in economic transactions or exchanges. B) necessary to conduct economic transactions. C) facilitates specialization in production. D) anything the government declares to have value. Points Earned: 0.5/0.5 Correct Answer(s): A

4.

When money is accepted as payment for a good or service, it is being used as a A) medium of exchange. B) store of value. C) unit of account. D) a mechanism for transforming current purchases into future purchases. Points Earned: 0.5/0.5 Correct Answer(s): A

5. When money is used to express the value of goods and services, it is functioning as a A) medium of exchange. B) store of value. C) unit of account. D) store of purchasing power. Points Earned: 0.0/0.5 Correct Answer(s): C

6. If money is used as a mechanism to hold purchasing power for a period of time it is functioning as a A) standard of value. B) store of value. C) medium of exchange. D) unit of account. Points Earned: 0.5/0.5 Correct Answer(s): B

7. Suppose after the semester ends, you take a trip to a tropical island. Upon arriving at the island, you make a stop at one of the markets and notice that everyone is carrying around jars full of little turtles. You also notice the person in line in front of you just paid for a bottle of rum with 6 turtles. Someone else just bought a straw hat for two turtles. Thinking back to your economics class (as painful as that may be), you would conclude that A) this is a barter economy. B) those little turtles are serving the function of money. C) turtles are valueless. D) turtle soup is a delicacy. Points Earned: 0.5/0.5 Correct Answer(s): B

8. Money that has no intrinsic value and is created by a government decree is called A) barter money. B) commodity money. C) fiat money. D) asset money. Points Earned: 0.0/0.5 Correct Answer(s): C

9. Currency held by the public $450 billion

Demand deposits 220 billion Other checkable deposits 170 billion Travelers checks 2 billion Savings deposits 800 billion Small time deposits 50 billion Money market mutual funds 170 billion Table 13.1 According to the information in Table 13.1, M1 is equal to: A) $620 billion. B) $672 billion. C) $842 billion. D) $1,012 billion. Points Earned: 0.0/0.5 Correct Answer(s): C

10. According to the information in Table 13.1, M2 is equal to A) $840 billion. B) $1,062 billion. C) $1,692 billion. D) $1,862 billion. Points Earned: 0.5/0.5 Correct Answer(s): D

11. An example of money is A) a dollar bill. B) a checking account balance. C) a traveler's check. D) all of the above Points Earned: 0.5/0.5 Correct Answer(s): D

12. Funny money no laughing matter in recession By Alex Johnson msnbc.com August 7, 2009 According to the U.S. Secret Service, during a three-month period in 2009 as much as $60,000 in counterfeit currency had been spread throughout central North Carolina. Before being arrested by sheriff's deputies, two teenagers were believed to be responsible for creating hundreds of $100 bills which fooled not only shop owners and bank tellers, but also were undetectable counterfeit-detecting iodine pens. Law enforcement officials have reported an increase in counterfeit currency since the beginning of the most recent recession. In addition to North Carolina, a number of counterfeit bills have turned up in Pennsylvania, Florida and Indiana, and Texas.

The Secret Service states that counterfeiting is not a major issue, and estimates that only three-tenths of one percent of all currency in circulation is counterfeit, but this is three times greater than just ten years ago. Based on the Secret Service estimates and the Federal Reserve's calculation of paper money in circulation in June 2009, approximately $2.6 billion in U.S. paper currency would be counterfeit. Some believe the number is even higher since counterfeiters generally produce larger denomination bills, preferring to produce $20s, $50s, and $100s. The estimates of counterfeit currency in circulation are strictly estimates, as the Secret Service and law enforcement officials admit that it is impossible to obtain an exact measurement of counterfeiting, especially since successful counterfeit bills remain undetected. Undetected counterfeit U.S. currency being held by the public both at home and abroad will impact the level of A) the reserve ratio. B) the money multiplier. C) commodity money. D) M1. Points Earned: 0.0/0.5 Correct Answer(s): D

13. Undetected counterfeit currency which is spent and circulated in the marketplace is an example of the counterfeit currency being used as a A) medium of exchange. B) commodity money. C) store of value. D) bank reserve. Points Earned: 0.5/0.5 Correct Answer(s): A

14. As long as counterfeit U.S. currency remains undetected and in circulation, an increase in the U.S. inflation rate would essentially A) decrease the real value of the counterfeit currency. B) increase the real value of the counterfeit currency. C) decrease the nominal value of the counterfeit currency. D) increase the nominal value of the counterfeit currency. Points Earned: 0.5/0.5 Correct Answer(s): A

15. One of the essential functions that a bank performs is A) purchasing government bonds. B) creating deposits by lending required reserves. C) transferring money from savers to lenders. D) owning assets like real estate. Points Earned: 0.0/0.5 Correct Answer(s): C

16. Loans are examples of a bank's A) assets.

B) liabilities. C) net worth. D) balance sheet. Points Earned: 0.0/0.5 Correct Answer(s): A

17. Which of the following is a bank liability? A) reserve deposits held at the Fed B) loans made to customers C) required reserves D) demand deposit balances Points Earned: 0.0/0.5 Correct Answer(s): D

18. The fraction of deposits that banks are required by law to hold and not lend out are called its A) reserves. B) excess reserves. C) required reserves. D) net worth. Points Earned: 0.0/0.5 Correct Answer(s): C

19. A bank's reserves A) are the sum of its excess and required reserves. B) can be held as cash in its vault. C) can be held as deposits with the Federal Reserve. D) all of the above Points Earned: 0.5/0.5 Correct Answer(s): D

20. Suppose that while vacationing in Switzerland, you won 9,375 Swiss francs, which is the equivalent of $8,000. When you return to the United States, you deposit the $8,000 into your checking account. If the required reserve ratio is 15 percent, this would increase your bank's A) liabilities by $8,000. B) excess reserves by $8,000. C) required reserves by $8,000. D) assets by $1,200. Points Earned: 0.5/0.5 Correct Answer(s): A

21. Logan finds $10 in his jacket pocket and deposits it into a bank. As a result of this single transaction, M1 has A) increased by $10. B) increased by more than $10. C) increased by less than $10. D) not changed.

Points Earned: 0.0/0.5 Correct Answer(s): D

22. Given the following information about Gotham Bank: Bank Deposits $50,000 Loans 34,000 Reserves 12,000 Reserve Requirement 20 percent Gotham Bank is holding ________ in excess reserves.

A) $22,000 B) $12,000 C) $2,000 D) -$2,000 Points Earned: 0.5/0.5 Correct Answer(s): C

23. Suppose a bank has $8 million in deposits and a reserve ratio of 20 percent. Its required reserves are A) $40,000. B) $400,000. C) $1,600,000. D) $16,000,000. Points Earned: 0.0/0.5 Correct Answer(s): C

24. Suppose a bank has $300,000 in deposits, a reserve ratio of 5 percent, and bank reserves of $45,000. This bank can make new loans in the amount of A) $345,000. B) $45,000. C) $30,000. D) $15,000. Points Earned: 0.0/0.5 Correct Answer(s): C

25. Suppose Diego deposits $4,000 in his bank. If the reserve ratio is 10 percent, this will lead to a maximum increase of ________ in checking account balances throughout all banks.. A) $0 B) $4,000 C) $10,000 D) $40,000 Points Earned: 0.5/0.5 Correct Answer(s): D

26.

Suppose Darrell has $4,000 in currency which he deposits in his bank. If the reserve ratio is 25 percent, this will lead to a maximum increase of ________ in M1 throughout all banks. A) $0 B) $4,000 C) $6,000 D) $12,000 Points Earned: 0.0/0.5 Correct Answer(s): D

27. If the banking system has a required reserve ratio of 40 percent, then the money multiplier is A) 2. B) 2.5. C) 4. D) 8. Points Earned: 0.0/0.5 Correct Answer(s): B

28. A bank may make loans until its A) required reserves are exhausted. B) excess reserves are exhausted. C) total assets are exhausted. D) total liabilities are exhausted. Points Earned: 0.5/0.5 Correct Answer(s): B

29. Suppose Kaylee withdraws $4,000 from her bank. If the reserve ratio is 25 percent, then this will lead to a decrease in M1 of A) $1,000. B) $4,000. C) $8,000. D) $12,000. Points Earned: 0.0/0.5 Correct Answer(s): D

30. Isabel receives a check for $7,000 from Kermit and deposits it in her bank. Suppose that the reserve ratio is 10 percent. As a result of this transaction the money supply will A) increase by $70,000. B) decrease by $63,000 and then increase by $70,000. C) decrease by $70,000 and then increase by $63,000. D) not change. Points Earned: 0.5/0.5 Correct Answer(s): D

31. Which of the following serves as the central bank for the United States? A) the Federal Reserve System B) the Treasury Department

C) the Federal Deposit Insurance Corporation D) the Congress Points Earned: 0.5/0.5 Correct Answer(s): A

32. When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as A) check kiting. B) check clearing. C) check floating. D) check balancing. Points Earned: 0.5/0.5 Correct Answer(s): B

33. Which of the following is NOT a subgroup of the Federal Reserve System? A) the Federal Reserve Banks B) the Federal Funds Market C) the Board of Governors D) the Federal Open Market Committee Points Earned: 0.0/0.5 Correct Answer(s): B

34. The group responsible for deciding on monetary policy is the A) Federal Open Market Committee. B) Board of Governors only. C) Federal Advisory Council. D) group of 12 Federal Reserve Bank presidents only. Points Earned: 0.0/0.5 Correct Answer(s): A

35. The purpose of having the members of the Board of Governors of the Federal Reserve serve fourteen-year terms is to A) ensure that the governors become well-experienced at policymaking. B) insulate the governors' policy decisions from the influence of presidential elections and politics. C) promote unity of opinion from shared time together. D) establish long-standing ties with high-level officials of other nations' central banks. Points Earned: 0.0/0.5 Correct Answer(s): B

36. The Federal Reserve is ________ the U.S. Treasury. A) independent of B) a part of C) a creation of D) under the control of Points Earned: 0.5/0.5 Correct Answer(s): A

37. There are ________ Federal Reserve Banks located in different parts of the United States. A) 10 B) 12 C) 15 D) 50 Points Earned: 0.5/0.5 Correct Answer(s): B

38. The money multiplier tends to be greater when A) individuals hold less cash. B) individuals hold more cash. C) banks hold more excess reserves. D) the reserve ratio increases. Points Earned: 0.0/0.5 Correct Answer(s): A

39. Financial monetary assets which often cannot be readily used in commercial exchanges are included in A) M1. B) M2. C) credit cards. D) prepaid accounts. Points Earned: 0.5/0.5 Correct Answer(s): B

40. Economists use different definitions of money because A) there are differences in the frequency with which depositors use their accounts. B) deposits can be domestic or international. C) deposits may be held at banks or savings and loans. D) it is not always clear which assets are used primarily as money. Points Earned: 0.5/0.5 Correct Answer(s): D

1. Generally, when the Federal Reserve lowers interest rates, investment spending ________ and GDP ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases Points Earned: 0.5/0.5 Correct Answer(s): B

2. The nominal interest rate is determined in the A) stock market.

B) money market. C) exchange market. D) bond market. Points Earned: 0.5/0.5 Correct Answer(s): B

3. The opportunity cost of holding money is A) heavy and awkward. B) the probability of theft or loss. C) the ease of conducting everyday business. D) the return that could have been earned from holding wealth in other assets. Points Earned: 0.5/0.5 Correct Answer(s): D

4. Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is A) $0.04. B) $4. C) $40. D) $400. Points Earned: 0.5/0.5 Correct Answer(s): C

5. An increase in the price level in the economy leads to A) a leftward shift in the demand for money curve. B) a rightward shift in the demand for money curve. C) a leftward movement along the demand for money curve. D) a rightward movement along the demand for money curve. Points Earned: 0.0/0.5 Correct Answer(s): B

6. A decrease in the level of real GDP in the economy leads to A) a leftward shift in the demand for money curve. B) a rightward shift in the demand for money curve. C) a leftward movement along the demand for money curve. D) a rightward movement along the demand for money curve. Points Earned: 0.0/0.5 Correct Answer(s): A

7. The demand for money that arises so that individuals or firms can make purchases on quick notice is called the A) real demand for money. B) transaction demand for money. C) liquidity demand for money. D) speculative demand for money. Points Earned: 0.0/0.5

Correct Answer(s):

8. What is the motivation for individuals to hold money? A) to reduce risk B) to provide liquidity C) to facilitate transactions D) all of the above Points Earned: 0.5/0.5 Correct Answer(s): D

9. The one organization that has the power to change the total amount of reserves in the banking system is the A) Congress. B) Executive Branch of the Federal Government. C) U.S. Treasury. D) Federal Reserve System. Points Earned: 0.5/0.5 Correct Answer(s): D

10. Increased investment spending in the economy would be a possible result of A) an increase in interest rates. B) an open market purchase of bonds by the Fed. C) an open market sale of bonds by the Fed. D) a decrease in the money supply. Points Earned: 0.0/0.5 Correct Answer(s): B

11. Selling government bonds through open market operations allows the Federal Reserve to A) decrease money in the Treasury. B) decrease the money supply in the private sector. C) receive discounts on future sales. D) receive a high rate of interest on the bonds. Points Earned: 0.0/0.5 Correct Answer(s): B

12. What would be a way for the Federal Reserve to stimulate a sluggish economy? A) print more money B) buy government bonds on the open market C) sell more government bonds D) encourage the stock market Points Earned: 0.0/0.5 Correct Answer(s): B

13. What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?

A) print more money B) buy back government bonds on the open market C) sell more government bonds D) encourage the stock market Points Earned: 0.0/0.5 Correct Answer(s): C

14. To increase the money supply using the reserve requirements, what would the Fed typically do? A) increase the reserve requirement for banks B) reduce the reserve requirement for banks C) make each bank set its own reserve levels D) let each bank get more currency from the Treasury Points Earned: 0.0/0.5 Correct Answer(s): B

15. The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate. A) federal funds B) discount C) prime D) commercial paper Points Earned: 0.5/0.5 Correct Answer(s): B

16. A decrease in the discount rate will A) decrease the money supply. B) not affect the money supply. C) increase the money supply. D) have an unclear effect on the money supply. Points Earned: 0.5/0.5 Correct Answer(s): C

17. Summary of the article: In Surprise Move, Fed Signals Pivot to Normal Policy By Sewell Chan New York Times February 18, 2010 In February 2010, the Fed raised the discount rate for the first time in over a year, signaling that the era of low interest rates necessitated by the recession and financial crisis will gradually end. Despite this quarter percent increase, the Fed also indicated that the discount rate would remain "exceptionally low" for an "extended period" due to the slow economic recovery. The increase widens the spread between the discount rate and the federal funds rate, a move the Fed states should encourage banks to use the discount window "only as a backup source of funds." The Fed also has eventual plans to reduce the money supply by extracting some of the extra reserves it added to the economy to assist banks during the financial crisis. In an attempt to reassure the market, the Fed emphasized that it was not suddenly moving in a new direction. In its statement announcing the interest rate increase, the Fed also stated that the modifications

are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." Even with the reassurances, some early signs of investor concern about further interest rate increases emerged. Following the Fed's announcement, stock futures fell, 10-year Treasury note yields rose, and the dollar experienced a slight appreciation in value. What impact does the Fed's raising the interest rate have on the money supply and on the price level? A) An increase in interest rates raises the money supply and eventually reduces prices. B) An increase in interest rates reduces the money demand which will slow the growth in prices. C) An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases. D) An increase in interest rates will increase investment spending and GDP, which will lower prices. Points Earned: 0.0/0.5 Correct Answer(s): B

18. What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy? A) An increase in interest rates decreases the money demand, which could slow increases in the price level. B) An increase in interest rates increases the money supply, which could cause the price level to increase. C) An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation. D) An increase in interest rates increases real GDP, which creates inflation in an economy. Points Earned: 0.5/0.5 Correct Answer(s): A

19. The assumption that the Fed would continue to increase interest rates caused the dollar to appreciate. For the U.S. economy, an appreciating dollar reflects A) a rise in exchange rates, decreasing net exports and GDP. B) a rise in exchange rates, increasing net exports and GDP. C) a fall in exchange rates, decreasing net exports and GDP. D) a fall in exchange rates, increasing net exports and GDP. Points Earned: 0.0/0.5 Correct Answer(s): A

20. The Federal Reserve influences the level of interest rates in the short run by changing the A) demand for money through open market operations. B) demand for money through changes in reserve requirements. C) supply of money through open market operations. D) supply of money through changes in stock market operations. Points Earned: 0.5/0.5 Correct Answer(s): C

21. If the quantity of money demanded exceeds the quantity of money supplied, then the A) interest rate stays the same. B) interest rate will increase. C) interest rate will decrease. D) effect on the interest rate is indeterminate. Points Earned: 0.0/0.5

Correct Answer(s):

22. If the Federal Reserve conducts an open market sale, the A) interest rate will not change. B) interest rate will increase. C) interest rate will decrease. D) money supply is increased. Points Earned: 0.5/0.5 Correct Answer(s): B

23. Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should A) stay the same. B) increase. C) decrease. D) increase to the same extent that the supply of money increases. Points Earned: 0.5/0.5 Correct Answer(s): C

24. Based on the model of the money market, when real GDP increases, the equilibrium interest rate should A) stay the same. B) increase. C) decrease. D) increase to the same extent that the supply of money increases. Points Earned: 0.5/0.5 Correct Answer(s): B

25. If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond? A) $44 B) $400 C) $440 D) $484 Points Earned: 0.5/0.5 Correct Answer(s): B

26. If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate? A) 3 percent B) 5 percent C) 15 percent D) 30 percent Points Earned: 0.0/0.5 Correct Answer(s): B

27.

If a one-year bond is purchased for $700 and the interest rate is 5 percent, what will it pay in one year? A) $35 B) $665 C) $735 D) $770 Points Earned: 0.5/0.5 Correct Answer(s): C

28. As the Federal Reserve ________ bonds, interest rates fall and the price of bonds ________. A) buys; rises B) sells; rises C) buys; falls D) sells; falls Points Earned: 0.0/0.5 Correct Answer(s): A

29. An open market ________ by the Fed increases the money supply, which leads to ________ interest rates and increased GDP. A) purchase; increased B) purchase; decreased C) sale; increased D) sale; decreased Points Earned: 0.0/0.5 Correct Answer(s): B

30. An open market sale by the Fed A) increases the money supply and increases output. B) increases the money supply and decreases output. C) decreases the money supply and increases output. D) decreases the money supply and decreases output. Points Earned: 0.0/0.5 Correct Answer(s): D

31. Actions by the Federal Reserve to influence the level of GDP are known as A) monetary policy. B) fiscal policy. C) cyclical policy. D) procyclical policy. Points Earned: 0.0/0.5 Correct Answer(s): A

32. If the Fed wished to decrease GDP, it could A) increase the reserve requirement or conduct an open market sale. B) increase the reserve requirement or conduct an open market purchase. C) decrease the reserve requirement or conduct an open market sale. D) decrease the reserve requirement or conduct an open market purchase.

Points Earned: 0.5/0.5 Correct Answer(s): A

33. If the Fed wished to decrease inflation, it could A) increase the reserve requirement or conduct an open market sale. B) increase the reserve requirement or conduct an open market purchase. C) decrease the reserve requirement or conduct an open market sale. D) decrease the reserve requirement or conduct an open market purchase. Points Earned: 0.0/0.5 Correct Answer(s): A

34. The exchange rate is A) the rate at which banks can borrow from the Fed. B) the slope of the investment function. C) the price at which one currency trades for another currency. D) the rate at which one can translate money into consumption goods. Points Earned: 0.5/0.5 Correct Answer(s): C

35. Lower U.S. interest rates cause the value of the dollar to A) rise, making U.S. goods relatively cheaper on world markets. B) rise, making U.S. goods relatively more expensive on world markets. C) fall, making U.S. goods relatively cheaper on world markets. D) fall, making U.S. goods relatively more expensive on world markets. Points Earned: 0.5/0.5 Correct Answer(s): C

36. An open market sale by the Fed causes the value of the dollar to A) rise, increasing net exports. B) rise, reducing net exports. C) fall, increasing net exports. D) fall, reducing net exports. Points Earned: 0.0/0.5 Correct Answer(s): B

37. A decrease in the value of a currency is called a(n) A) depreciation. B) appreciation. C) consolation. D) integration. Points Earned: 0.5/0.5 Correct Answer(s): A

38. A U.S. company that wishes to sell more to other countries would favor

A) an appreciation of the dollar. B) a depreciation of the dollar. C) neither an appreciation nor a depreciation of the dollar. D) higher interest rates. Points Earned: 0.0/0.5 Correct Answer(s): B

39. Inside lags are A) longer for monetary policy than for fiscal policy. B) longer for fiscal policy than for monetary policy. C) the same for fiscal policy and monetary policy. D) more variable for monetary policy than for fiscal policy. Points Earned: 0.5/0.5 Correct Answer(s): B

40. Outside lags occur because A) firms must change investment plans before monetary policy can be effective. B) it takes time to identify a problem. C) once a problem is diagnosed, it still takes time to implement policy changes. D) once changes are finally diagnosed and implemented, policies are immediately effective. Points Earned: 0.0/0.5 Correct Answer(s): A

1. In the long run, any decreases in aggregate demand A) decrease the level of prices and output. B) decrease the level of prices. C) decrease the level of output. D) have no effect on either the level of prices or of output. Points Earned: 0.0/0.5 Correct Answer(s): B

2. In the short run A) the level of GDP is determined by the demand and supply for labor, the supply of capital, and technological progress. B) increases in the money supply increase GDP. C) prices are flexible. D) the economy always operates at full employment. Points Earned: 0.0/0.5 Correct Answer(s): B

3. In the short run, decreases in government spending will A) decrease the level of prices and GDP. B) decrease the level of GDP. C) decrease the level of prices. D) have no effect on either the level of prices or of GDP. Points Earned: 0.0/0.5

Correct Answer(s):

4. If potential output is ________ than the current level of GDP, the unemployment rate is ________ the natural rate. A) greater; above B) greater; below C) less; above D) less; at Points Earned: 0.5/0.5 Correct Answer(s): A

5. When GDP is below potential output, prices fall because A) firms can easily find new workers and are forced to offer higher wages, which decreases the costs of production. B) firms can easily find new workers and can offer lower wages, which decreases the costs of production. C) firms find it difficult to hire and retain workers and are forced to offer higher wages, which increases the costs of production. D) firms find it difficult to hire and retain workers and can offer higher wages, which decreases the costs of production. Points Earned: 0.0/0.5 Correct Answer(s): B

6. Suppose that an economy has been experiencing 4 percent annual inflation. If output exceeds potential output, prices generally will rise at A) a rate of 4 percent. B) a rate greater than 4 percent. C) a rate less than 4 percent. D) a rate of 0 percent. Points Earned: 0.5/0.5 Correct Answer(s): B

7. The short-run aggregate supply curve is relatively flat because A) in the short run, prices are flexible but output is equal to potential output. B) in the long run, prices are flexible but output is equal to potential output. C) in the short run, prices do not change very much but output may be above, below, or equal to potential output. D) in the long run, prices are fixed and output is equal to potential output. Points Earned: 0.0/0.5 Correct Answer(s): C

8. The long-run aggregate supply curve is vertical because A) in the short run, prices are flexible but output is equal to potential output. B) in the long run, prices are flexible but output is equal to potential output. C) in the short run, prices are fixed but output may be above, below, or equal to potential output. D) in the long run, prices are fixed and output is equal to potential output. Points Earned: 0.0/0.5

Correct Answer(s):

9.

Refer to Figure 15.1. The long-run equilibrium occurs at point A) a. B) b. C) c. D) y0. Points Earned: 0.0/0.5 Correct Answer(s): A

10. Refer to Figure 15.1. The short-run equilibrium occurs at point A) a. B) b. C) c. D) yF. Points Earned: 0.0/0.5 Correct Answer(s): B

11. Refer to Figure 15.1. At point b A) GDP is above potential output. B) GDP is below potential output. C) unemployment is above the natural rate. D) the economy is in long-run equilibrium. Points Earned: 0.0/0.5 Correct Answer(s): A

12. Refer to Figure 15.1. At point a A) unemployment is above the natural rate. B) unemployment is below the natural rate. C) GDP is equal to potential output. D) GDP is below potential output. Points Earned: 0.0/0.5 Correct Answer(s): C

13.

Refer to Figure 15.2. The economy is at full employment and the unemployment rate is at the natural rate at point

A) a. B) b. C) c. D) d.

Points Earned: 0.5/0.5 Correct Answer(s): B

14. Refer to Figure 15.2. The unemployment rate is above the natural rate at point A) a. B) b. C) c. D) d. Points Earned: 0.0/0.5 Correct Answer(s): A

15. Refer to Figure 15.2. Output is likely to rise and prices are likely to fall if the economy is at point A) a. B) b. C) c. D) d. Points Earned: 0.5/0.5 Correct Answer(s): A

16. Refer to Figure 15.2. A movement from point a to point b would be the result of the A) unemployment rate exceeding the natural rate, causing wages to rise. B) unemployment rate exceeding the natural rate, causing wages to fall. C) natural rate exceeding the unemployment rate, causing wages to rise. D) natural rate exceeding the unemployment rate, causing wages to fall. Points Earned: 0.0/0.5 Correct Answer(s): B

17. Refer to Figure 15.2. The unemployment rate is below the natural rate at point A) a. B) b. C) c. D) d. Points Earned: 0.5/0.5 Correct Answer(s): C

18. Refer to Figure 15.2. Output is likely to fall and prices are likely to rise if the economy is at point A) a. B) b. C) c. D) d. Points Earned: 0.0/0.5 Correct Answer(s): C

19. Refer to Figure 15.2. A movement from point c to point b would be the result of the

A) unemployment rate being higher than the natural rate, causing wages to rise. B) unemployment rate being higher than the natural rate, causing wages to fall. C) natural rate being higher than the unemployment rate, causing wages to rise. D) natural rate being higher than the unemployment rate, causing wages to fall. Points Earned: 0.0/0.5 Correct Answer(s): C

20. How Poland became the only EU nation to avoid recession From Fred Pleitgen, CNN, and Catriona Davies CNN cnn.com June 29, 2010 Although its growth slowed from an average of 5 percent per year for almost 20 straight years to only 1.7 percent in 2009, Poland was only one of two European Union countries in 2009 to experience any growth at all (Malta is the other., and is the only country in the EU that avoided the recent global recession. Low private debt, strong domestic demand, and a flexible currency (Poland uses its own currency, the zloty, and not the euro. are being credited with Poland's successful avoidance of the recession. Poland is, however, struggling with a growing budget deficit and an unemployment rate of 11 percent, and dealing with these two issues have become priorities in the country. Reforms such as these have become victims of politics in the past, and economists believe that the upcoming presidential election will be crucial for any economic reforms. Economists are optimistic, however, and expect the growth to continue. The economic forecast for 2010 shows growth in Poland increasing to 2 percent. According to the Application, Poland experienced economic growth in 2009, yet its unemployment rate was 11 percent, which was above the European average. This indicates that its 2009 output was A) below potential output. B) above potential output. C) above actual output. D) below actual output. Points Earned: 0.5/0.5 Correct Answer(s): A

21. Recall the Application. Poland experienced economic growth in 2009, yet its unemployment rate was 11 percent. All else equal, if this unemployment rate is above the natural rate of unemployment, what will tend to happen over time? A) Wages and prices will fall. B) Wages and prices will rise. C) Wages will rise and prices will fall. D) Wages will fall and prices will rise. Points Earned: 0.0/0.5 Correct Answer(s): A

22. Recall the Application. Poland experienced economic growth in 2009, yet its unemployment rate was 11 percent. Some economists have estimated that the natural rate of unemployment in Poland is also approximately 11 percent. All else equal, if this is the case, what will tend to happen in the Polish economy over time? A) Wages and prices will fall. B) Wages and prices will rise.

C) Wages will rise and prices will fall. D) Wages and prices will remain close to their current levels. Points Earned: 0.5/0.5 Correct Answer(s): D

23. Recall the Application. Poland experienced economic growth in 2009, yet its unemployment rate was 11 percent. Some economists have estimated that the natural rate of unemployment in Poland is also approximately 11 percent. If this is the case, then for the Polish economy in 2009, A) actual output was significantly above potential output. B) potential output was significantly above actual output. C) actual output was roughly equal to potential output. D) None of the above are correct because there is no relationship between actual output and potential output in the short run. Points Earned: 0.0/0.5 Correct Answer(s): C

24. The GDP for the nation of Economia is currently below potential output. If the adjustment to the long-run equilibrium occurs rapidly, the government of Economia is likely to pursue a policy of A) increasing government spending to increase aggregate demand. B) increasing the money supply to increase aggregate demand. C) taking no action and allowing the economy to adjust naturally. D) decreasing government spending to increase aggregate demand. Points Earned: 0.0/0.5 Correct Answer(s): C

25. The GDP for the nation of Economia is currently below potential output. If the adjustment to the long-run equilibrium occurs slowly, the government of Economia is likely to pursue a policy of A) increasing government spending to increase aggregate demand. B) decreasing the money supply to increase aggregate demand. C) taking no action and allowing the economy to adjust naturally. D) decreasing government spending to increase aggregate demand. Points Earned: 0.0/0.5 Correct Answer(s): A

26. The GDP for the nation of Economia is currently above potential output. If the adjustment to the long-run equilibrium occurs slowly, the government of Economia is most likely to pursue a policy of A) increasing government spending to decrease aggregate demand. B) decreasing the money supply to decrease aggregate demand. C) taking no action and allowing the economy to adjust naturally. D) decreasing government spending to increase aggregate demand. Points Earned: 0.0/0.5 Correct Answer(s): B

27. During the recession of 2007-20009, nominal interest rates in the United States were very close to zero. This made using ________ to stimulate the economy difficult. A) fiscal policy

B) monetary policy C) government spending D) tax cuts Points Earned: 0.0/0.5 Correct Answer(s): B

28. The classic political business cycle would have a politician following A) expansionary policies before an election, and contractionary policies after the election. B) contractionary policies before an election, and expansionary policies after the election. C) expansionary policies before and after an election. D) contractionary policies before and after an election. Points Earned: 0.0/0.5 Correct Answer(s): A

29.

Refer to Figure 15.3 If this economy is initially in a recession, the price level will start to change to bring the economy back to full employment, which is reflected by the movement from A) p1 to p0. B) a to b. C) d to c. D) f to e. Points Earned: 0.5/0.5 Correct Answer(s): B

30. Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would lead to a change in money demand, which is reflected by the movement from A) f to e. B) r1 to r0. C) AS1 to AS0. D) Md0 to Md1. Points Earned: 0.0/0.5 Correct Answer(s): D

31. Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would also change the money demand. The change in money demand will change interest rates, which is reflected by the movement from A) yF to y0. B) r0 to r1. C) AS1 to AS0. D) I1 to I0. Points Earned: 0.0/0.5 Correct Answer(s): B

32.

Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would also change the money demand and interest rates. The change in interest rates will change investment spending, which is reflected by the movement from A) e to f. B) I1 to I0. C) r1 to r0. D) P1 to P0. Points Earned: 0.5/0.5 Correct Answer(s): A

33.

Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the short run, as the supply of money increases, the economy moves to point A) a. B) b. C) c. D) d. Points Earned: 0.5/0.5 Correct Answer(s): C

34. Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the long run, as the supply of money decreases, the economy moves to point A) a. B) b. C) c. D) d. Points Earned: 0.0/0.5 Correct Answer(s): D

35. Suppose that GDP is ________ potential output. We would expect prices to rise, money demand to rise, interest rates to rise, and total demand to ________. A) above; fall B) above; rise C) below; fall D) below; rise Points Earned: 0.0/0.5 Correct Answer(s): A

36. The Federal Reserve can use monetary policy to A) change output in the long run, but not the short run. B) change output in the short run, but not the long run. C) change output in both the short run and the long run. D) Monetary policy has no effect on output. Points Earned: 0.0/0.5 Correct Answer(s): B

37. In the long run, increases in the money supply have no effect on the level of output because prices and wages will A) rise as GDP exceeds potential output, causing real interest rates to rise and output to fall to its original level. B) fall as GDP exceeds potential output, causing real interest rates to rise and output to fall to its original level. C) rise as GDP exceeds potential output, causing real interest rates to fall and output to fall to its original level. D) fall as GDP exceeds potential output, causing real interest rates to fall and output to fall to its original level. Points Earned: 0.0/0.5 Correct Answer(s): A

38. Crowding out refers to A) an increase of investment caused by an increase in government spending. B) a decrease in investment caused by an increase in government spending. C) a decrease in investment caused by a decrease in government spending. D) an increase of investment caused by a decrease in government spending. Points Earned: 0.0/0.5 Correct Answer(s): B

39. A necessary condition for the classical model to work is that A) wages and prices are fully flexible. B) prices, but not wages, are fully flexible. C) wages and prices are not fully flexible. D) wages, but not prices, are fully flexible. Points Earned: 0.0/0.5 Correct Answer(s): A

40. The Keynesian view that demand could fall short of production is more likely to hold true if A) wages and prices are fully flexible. B) prices, but not wages, are fully flexible. C) wages and prices are not fully flexible. D) wages, but not prices, are fully flexible. Points Earned: 0.0/0.5 Correct Answer(s): C