Term
The total income of everyone in the economy is exactly equal to the total:
A)expenditure on the economy's output of goods and services.
B)consumption expenditures of everyone in the economy.
C)expenditures of all businesses in the economy.
D)government expenditures. |
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Definition
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Term
An example of an imputed value in the GDP is the:
A)value-added of meals cooked at home.
B) housing services enjoyed by homeowners.
C)services of automobiles to their owners.
D)value of illegal drugs sold. |
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Definition
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Term
If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?
A)0.79
B)1.03
C) 1.27
D)1.30 |
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Definition
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Term
If bread is produced by using a constant returns to scale production function, then if the:
A)number of workers is doubled, twice as much bread will be produced.
B)amount of equipment is doubled, twice as much bread will be produced. C)amounts of equipment and workers are both doubled, twice as much bread will be produced.
D)amounts of equipment and workers are both doubled, four times as much bread will be produced. |
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Definition
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Term
In the national income accounts, all of the following are classified as government purchases except:
A) payments made to Social Security recipients.
B)services provided by police officers.
C)purchases of military hardware.
D)services provided by U.S. senators. |
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Definition
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Term
When a firm sells a product out of inventory, GDP:
A)increases.
B)decreases.
C) is not changed.
D)increases or decreases, depending on the year the product was produced. |
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Definition
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Term
An economy's factors of production and its production function determine the economy's:
A)labor force participation rate.
B)budget surplus or deficit.
C)population growth rate.
D) output of goods and services. |
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Definition
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Term
If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are:
A)$131.
B)–$131.
C)$31.
D) –$31. |
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Definition
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Term
All of the following transactions that took place in 2009 would be included in GDP for2009 except the purchase of a
A) book printed in 2009, entitled The Year 3000.
B) 2001 Jeep Cherokee.
C) year 2010 calendar printed in 2009.
D) ticket to see the movie 2001. |
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Definition
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Term
According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:
A)inflation rate.
B) expected inflation rate.
C)ex ante real interest rate.
D)ex post real interest rate. |
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Definition
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Term
If the price of Italian shoes imported into the United States increases, then
a)both the GDP deflator and the consumer price index will increase.
b)neither the GDP deflator nor the consumer price index will increase.
c)the GDP deflator will increase, but the consumer price index will not increase.
d) the consumer price index will increase, but the GDP deflator will not increase. |
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Definition
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Term
Prices of items included in the CPI are:
A)averaged with the price of every item weighted equally.
B)weighted according to amount of the item produced in GDP.
C) weighted according to quantity of the item purchased by the typical household.
D)chained to the base year by the year-to-year growth rate of the item. |
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Definition
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Term
According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:
A)only to the labor used in production.
B)partly between labor and capital used in production, with the surplus going to the owners of the firm as profits.
C)equally between the labor and capital used in production.
D) between the labor and capital used in production, according to their marginal productivities. |
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Definition
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Term
In the classical model, what adjusts to eliminate any unemployment of labor in the economy?
A)the average price level
B)the interest rate
C)the real rental price of capital
D)the real wage |
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Definition
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Term
Assume that the consumption function is given by C = 150 + 0.85(Y – T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption:
A) decreases by 0.85 units.
B)decreases by 0.15 units.
C)increases by 0.15 units.
D)increases by 0.85 units. |
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Definition
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Term
According to the closed economy, market-clearing model (the model developed in Chapter 3), when taxes decrease without a change in government spending:
A)consumption and investment both increase.
B)consumption and investment both decrease.
C) consumption increases and investment decreases.
D)consumption decreases and investment increases. |
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Definition
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Term
Use the closed economy, market-clearing model (the model developed in Chapter 3) and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand:
A)investment increases and the interest rate rises.
B) investment is unchanged and the interest rate rises.
C)investment and the interest rate are both unchanged.
D)investment increases and the interest rate falls. |
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Definition
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Term
If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:
A)1 percent.
B)6 percent.
C) –4 percent.
D)–5 percent. |
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Definition
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Term
The concept of monetary neutrality in the classical model means that an increase in the money supply will increase:
A)real GDP.
B)real interest rates.
C) nominal interest rates.
D)both saving and investment by the same amount. |
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Definition
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Term
To reduce the money supply, the Federal Reserve:
A) buys government bonds.
B) sells government bonds.
C) creates demand deposits.
D) destroys demand deposits. |
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Definition
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Term
According to the classical dichotomy, when the money supply decreases, _____ will decrease.
A) real GDP
B) consumption spending
C) the price level
D) investment spending |
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Definition
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Term
According to the quantity theory a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____.
A) 1; 5
B) 5; 1
C) 1; 1
D) 5; 5 |
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Definition
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Term
Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the rate of inflation in this country?
A)3 percent
B) 7 percent
C)10 percent
D)13 percent |
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Definition
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Term
Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.
A)nominal; high
B)nominal; low
C)real; high
D)real; low |
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Definition
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Term
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:
A)$50 billion.
B)$100 billion.
C) $150 billion.
D)$600 billion. |
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Definition
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Term
The ratio of the money supply to the monetary base is called:
A)the currency–deposit ratio.
B)the reserve–deposit ratio.
C)high-powered money.
D) the money multiplier. |
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Definition
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Term
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:
A)it cannot be determined whether the money supply increases or decreases.
B)the money supply increases.
C) the money supply decreases.
D)the money supply does not change. |
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Definition
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Term
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:
A) $200 billion.
B) $400 billion.
C) $800 billion.
D) $1,000 billion. |
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Definition
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Term
If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.
A)reserve requirements
B)the discount rate
C) the money supply
D)the reserve–deposit ratio |
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Definition
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Term
The transactions velocity of money indicates the _____ in a given period, while the income velocity of money indicates the _____ in a given period.
A)number of transactions; amount of income earned
B)quantity of money used for transactions; quantity of money paid as income
C) number of times a dollar bill changes hands; number of times a dollar bill enters someone's income
D)volume of transactions; flow of income |
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Definition
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Term
Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.
A)high; high
B) high; low
C)low; low
D)low; high |
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Definition
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Term
“Inflation tax” means that:
A)as the price level rises, taxpayers are pushed into higher tax brackets. B) as the price level rises, the real value of money held by the public decreases.
C)as taxes increase, the rate of inflation also increases.
D)in a hyperinflation, the chief source of tax revenue is often the printing of money. |
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Definition
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Term
The general demand function for real balances depends on the level of income and the:
A)real interest rate.
B) nominal interest rate.
C)rate of inflation.
D)price level. |
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Definition
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Term
If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:
A)the classical dichotomy still holds. B)a rise in money growth leads to a fall in consumption and a rise in investment.
C)a rise in money growth leads to a rise in consumption and a fall in investment.
D)a rise in money growth leads to a rise in both consumption and investment. |
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Definition
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Term
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals:
A)–$25 billion.
B) –$10 billion.
C)$10 billion.
D)$25 billion. |
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Definition
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Term
In a small open economy, if domestic saving equals $50 billion and domestic investment equals $50 billion, then there is ______ and net capital outflow equals ______.
A) a trade deficit; $100 billion
B) balanced trade; $0
C) a trade surplus; $100 billion
D) balanced trade; $100 billion |
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Definition
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Term
In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow.
A) surplus; negative
B) deficit; positive
C) surplus; positive
D) deficit; negative |
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Definition
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Term
In a small open economy, if the world interest rate falls, then domestic investment will _____ and the real exchange rate will _____, holding all else constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase |
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Definition
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Term
In a small open economy, if the government encourages investment, say through an investment tax credit, investment:
A)increases and is financed through an increase in national saving.
B)increases and is financed through an increase in exports.
C) increases and is financed through an inflow of foreign capital.
D)does not increase; the interest rate rises instead. |
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Definition
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Term
An increase in the trade deficit of a small open economy could be the result of:
A)an increase in taxes.
B) an increase in government spending.
C)an increase in the world interest rate.
D)the expiration of an investment tax-credit provision. |
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Definition
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Term
In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ______ and ______ net capital outflow.
A)deficit; negative
B) surplus; positive
C)deficit; positive
D)surplus; negative |
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Definition
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Term
The adoption of an investment tax credit in a small open economy is likely to lead to:
A)no change in either domestic investment or domestic saving in the small open economy.
B)an increase in both domestic investment and domestic saving in the small open economy.
C)an increase in domestic saving but no change in domestic investment in the small open economy.
D) an increase in domestic investment but no change in domestic saving in the small open economy. |
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Definition
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Term
The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports.
A)more; greater
B)more; smaller
C) less; greater
D)less; smaller |
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Definition
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Term
In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:
A) rises and net exports fall.
B) rises and net exports rise.
C) falls and net exports fall.
D) falls and net exports rise. |
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Definition
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Term
In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate:
A)rises and net exports fall.
B)rises and net exports rise.
C)falls and net exports fall.
D) falls and net exports rise. |
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Definition
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Term
A 2 percent reduction in the money supply will, according to most economists, reduce prices 2 percent:
A)in both the short and long runs.
B)in neither the short nor long run.
C)in the short run but lead to unemployment in the long run.
D) in the long run but lead to unemployment in the short run. |
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Definition
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|
Term
A difference between the economic long run and the short run is that:
A)the classical dichotomy holds in the short run but not in the long run.
B)monetary and fiscal policy affect output only in the long run.
C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.
D)prices and wages are sticky in the long run only. |
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Definition
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Term
When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.
A)greater; inward
B) greater; outward
C)lower; inward
D)lower; outward |
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Definition
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Term
The price level decreases and output increases in the transition from the short run to the long run when the short-run equilibrium is _____ the natural rate of output in the short run.
A)above
B) below
C)equal to
D)either above or below |
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Definition
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Term
If the Fed accommodates an adverse supply shock, output falls ______ and prices rise ______.
A) less; more
B)less; less
C)more; less
D)more; more |
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Definition
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Term
A variable that links the market for goods and services and the market for real money balances in the IS–LM model is the:
A)consumption function.
B) interest rate.
C)price level.
D)nominal money supply. |
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Definition
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Term
With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the ______ of equilibrium income and there is unplanned inventory ______.
A) right; decumulation
B) right; accumulation
C) left; decumulation
D) left; accumulation |
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Definition
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Term
In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier. A)is larger than
B)equals
C)is smaller than
D)is the inverse of the |
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Definition
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Term
In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income:
A)increases by 250.
B) increases by more than 250.
C)decreases by 250.
D)increases, but by less than 250. |
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Definition
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Term
The theory of liquidity preference implies that the quantity of real money balances demanded is:
A)negatively related to both the interest rate and income.
B)positively related to both the interest rate and income.
C)positively related to the interest rate and negatively related to income. D) negatively related to the interest rate and positively related to income. |
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Definition
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Term
In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y – T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is:
A)350.
B)400.
C) 600.
D)750. |
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Definition
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Term
Assume that the money demand function is (M/P)d = 2,200 – 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent.
A)2
B)4
C) 6
D)8 |
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Definition
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Term
The intersection of the IS and LM curve determines the values of:
A)r, Y, and P, given G, T, and M.
B)r, Y, and M, given G, T, and P.
C) r and Y, given G, T, M, and P.
D)p and Y, given G, T, and M. |
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Definition
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|
Term
The Pigou effect suggests that falling prices will increase income because real balances influence ______ and will shift the ______ curve.
A)money demand; LM
B)the money supply; LM
C) consumer spending; IS
D)government spending; IS |
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Definition
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Term
If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by:
A)100.
B)200.
C)300.
D) 400. |
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Definition
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Term
If taxes are raised, but the Fed prevents income from falling by raising the money supply, then:
A)both consumption and investment remain unchanged.
B)consumption rises but investment falls.
C)investment rises but consumption falls.
D)both consumption and investment fall. |
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Definition
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|
Term
One policy response to the U.S. economic slowdown of 2001 was tax cuts. This policy response can be represented in the IS–LM model by shifting the ______ curve to the ______.
A)LM; right
B)LM; left
C) IS; right
D)IS; left |
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Definition
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Term
The intersection of the IS* and LM* curves shows the ______ and the ______ at which both the goods market and the money market are in equilibrium.
A)interest rate; price level
B)price level; exchange rate
C) level of output; exchange rate
D)level of output; price level |
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Definition
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|
Term
In a small open economy with a floating exchange rate, an effective policy to decrease equilibrium output is to:
A)decrease government spending.
B)decrease taxes.
C)increase the money supply.
D) decrease the money supply. |
|
Definition
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Term
Under a fixed-exchange-rate system, the central bank of a small open economy must:
A)have a reserve of its own currency, which it must have accumulated in past transactions.
B)have a reserve of foreign currency, which it can print.
C) allow the money supply to adjust to whatever level will ensure that the equilibrium exchange rate equals the announced exchange rate.
D)follow a rule specifying a constant growth rate for the money supply. |
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Definition
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Term
In a small open economy with a fixed exchange rate, if the government increases government purchases, then in the new short-run equilibrium:
A)the exchange rate rises but income does not rise.
B) income rises but the exchange rate does not rise.
C)both income and the exchange rate rise.
D)neither income nor the exchange rate rises, as the money supply contracts. |
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Definition
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Term
According to the Mundell–Fleming model, under flexible exchange rates expansionary monetary policy ______ increase income, and under fixed exchange rates expansionary monetary policy ______ increase income.
A)can; can
B) can; cannot
C)cannot; can
D)cannot; cannot |
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Definition
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Term
A fall in consumer confidence about the future, which induces consumers to spend less and save more, will, according to the Mundell–Fleming model with floating exchange rates, lead to:
A)a fall in consumption and income.
B)no change in consumption or income.
C) no change in income but a rise in net exports.
D)no change in income or net exports. |
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Definition
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|
Term
According to the sticky-price model, output will be at the natural level if:
A) firms expect a high price level and the demand for goods is high.
B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices.
C) the price level equals the expected price level.
D) expectations are formed adaptively, but not if expectations are formed rationally. |
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Definition
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|
Term
The imperfect-information model bases the difference in the short-run and long-run aggregate supply curve on:
A)sticky wages.
B)sticky prices.
C) temporary misperceptions about prices.
D)procyclical real wages. |
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Definition
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Term
Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run; and in the long run the expected price level will ______, causing the level of output to return to the natural level.
A)increase; increase
B)increase; decrease
C) decrease; decrease
D)decrease; increase |
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Definition
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|
Term
The model of aggregate demand and aggregate supply is consistent with short-run monetary ______ and long-run monetary ______.
A)neutrality; neutrality
B)nonneutrality; nonneutrality
C)neutrality; nonneutrality
D)nonneutrality; neutrality |
|
Definition
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|
Term
The Phillips curve expresses a short-run link:
A)among nominal variables.
B)among real variables.
C)among unexpected variables.
D) between nominal and real variables. |
|
Definition
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|
Term
The Phillips curve depends on all of the following forces except:
A) the current exchange rate.
B)expected inflation.
C)the deviation of unemployment from its natural rate.
D)supply shocks. |
|
Definition
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|
Term
The government can lower inflation with a low sacrifice ratio if the:
A) money supply is reduced slowly.
B) public has adaptive expectations.
C) short-run aggregate supply schedule is relatively flat.
D) public believes that policymakers are committed to reducing inflation. |
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Definition
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