Download 10.00 points - HCC Learning Web

 1.
award:
10.00 points
The production possibilities curve illustrates which two of the following essential principles?
Factors of production and price signals.
→
Scarce resources and opportunity cost.
Market mechanisms and laissez faire.
Economic growth and market failure.
The production possibilities curve illustrates scarce resources and opportunity cost as essential principles.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 01­02 What
the production­possibilities curve
represents.
2.
award:
10.00 points
At which point is society producing some of each type of structure but still producing inefficiently? (See Figure 1.1.)
A.
B.
→
C.
D.
More could be produced by moving to a point on the production possibilities curve.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 01­02 What
the production­possibilities curve
represents.
3.
award:
10.00 points
Refer to Figure 1.8. If the university decides to lower grading standards, then
This curve will shift rightward.
→
This curve will pivot up and to the left.
The curve will begin to bend downward at an earlier point.
We will slide up the curve from point B to point C.
We would expect grades to be higher with less study time required, all else equal.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 01­01 How
scarcity creates opportunity costs.
4.
award:
10.00 points
The slope of a curve at any point is given by this formula:
→
The change in y coordinates between two points divided by the change in their x coordinates.
The change in x coordinates between two points divided by the change in their y coordinates.
The percentage change in y coordinates between two points divided by the percentage change in
their x coordinates.
The percentage change in x coordinates between two points divided by the percentage change in
their y coordinates.
This is the equivalent of rise over run, where the change in y is the rise and the change in x is the run.
Multiple Choice
5.
Difficulty: 2 Medium
Learning Objective: 01­01 How
scarcity creates opportunity costs.
award:
10.00 points
When the relationship between two variables changes,
There is movement from one point on the curve to another point on the curve.
The curve becomes linear.
→
The entire curve shifts.
All of the choices are correct.
This would be caused by a change in a variable that is not on either axis.
Multiple Choice
6.
Difficulty: 2 Medium
Learning Objective: 01­01 How
scarcity creates opportunity costs.
award:
10.00 points
If an economy is producing inside the production possibilities curve, then
There is full employment of resources.
It is operating efficiently.
→
It can produce more of one good without giving up some of another good.
There are not enough resources available to produce more output.
No goods must be given up to move from an inefficient to an efficient level of production. Hence, there is no
sacrifice or opportunity cost.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 01­02 What
the production­possibilities curve
represents.
7.
award:
10.00 points
Which of the following correctly characterizes the shape of a constant opportunity cost production possibilities
curve?
A straight line indicating that the law of increasing opportunity costs applies.
→
A straight line when there is constant opportunity costs.
A line that curves outward when resources are perfectly adaptable in the production of different
goods.
A line that curves inward when resources are perfectly adaptable in the production of different
goods.
A straight­line production possibilities curve means resources are equally adaptable to producing either good.
Multiple Choice
8.
Difficulty: 2 Medium
Learning Objective: 01­02 What
the production­possibilities curve
represents.
award:
10.00 points
The fact that there are too few resources to satisfy all our wants is attributed to
→
Scarcity.
Greed.
Shortages.
Lack of money.
There is always an imbalance in what is desired and what is possible.
Multiple Choice
9.
Difficulty: 2 Medium
Learning Objective: 01­01 How
scarcity creates opportunity costs.
award:
10.00 points
Which of the following has occurred when government directives do not produce better economic outcomes?
→
Government failure.
Market failure.
Macroeconomic failure.
Scarcity.
Government failure occurs when government action ends up making the market outcomes worse, not better.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 01­04 How
market and government
approaches to economic problems
differ.
10.
award:
10.00 points
Which of the following contains the two sectors whose percentage contribution to the real GDP has declined since
1900?
→
Farming and manufacturing.
Manufacturing and exports.
Farming and services.
Services and exports.
Farming and manufacturing are less important in the overall economy today compared to the service sector.
Multiple Choice
11.
Difficulty: 2 Medium
Learning Objective: 02­02 How
the U.S. output mix has changed
over time.
award:
10.00 points
Those who are interested in assessing the relative standard of living of different countries over a given time period
are most likely to look at
GDP.
Percentage change in GDP.
Population.
→
Per capita GDP.
Comparing living standards between countries allows us to see which countries are more or less prosperous
per person.
Multiple Choice
12.
Difficulty: 2 Medium
Learning Objective: 02­01 The
relative size of the U.S. economy.
award:
10.00 points
As a country's literacy rate and human capital capacity increase, the relative number of
Labor­intensive production processes increases.
→
Capital­intensive production processes increases.
Sector service jobs decreases.
None of the choices are correct.
Ceteris paribus, as the labor force accrues more human capital, they are supplied with more physical capital.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 02­03 How
the U.S. is able to produce so
much output.
13.
award:
10.00 points
Income inequality is greatest in
→
Poorest countries.
Middle­income countries.
Richest countries.
None of the choices are correct.
Poor countries have low GDPs relative to population size and are not necessarily controlled by democratic
governments.
Multiple Choice
14.
Difficulty: 2 Medium
Learning Objective: 02­04 How
incomes are distributed in the
United States and elsewhere.
award:
10.00 points
The result of government intervention in the market is that
Society is always better off.
The production possibilities curve always shifts outward.
→
Society may be worse off.
Society is always worse off.
Government intervention in the market does not always cause the best outcome for society at large.
Multiple Choice
15.
Difficulty: 2 Medium
Learning Objective: 02­03 How
the U.S. is able to produce so
much output.
award:
10.00 points
The government regulates food additives
To keep food producers from dominating their markets.
To restrain the market power of food producers.
To assess their safety.
→
To prevent externalities.
Governments should intervene to reduce or eliminate external costs.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 02­03 How
the U.S. is able to produce so
much output.
16.
award:
10.00 points
Which of the following is likely to be most capital­intensive?
Farming in developing countries.
Production of apparel by the Chinese.
→
Oil refining in the United States.
None of the choices are correct.
Capital­intensive means there is a high ratio of capital to labor used in production.
Multiple Choice
17.
Difficulty: 2 Medium
Learning Objective: 02­03 How
the U.S. is able to produce so
much output.
award:
10.00 points
In terms of an economy's production possibilities curve, a decrease in the level of human capital, ceteris paribus,
will cause
→
An inward shift of the curve.
A movement from the curve to a point inside the curve.
A movement along the curve.
An expansion of the curve.
A decrease in any resource, including human capital, will decrease a nation's production possibilities curve.
Multiple Choice
18.
Difficulty: 2 Medium
Learning Objective: 02­03 How
the U.S. is able to produce so
much output.
award:
10.00 points
Market demand is determined by all of the following except
→
The number of potential sellers.
Income.
Tastes.
Expectations about future income.
Market demand is determined by the number of potential buyers and their respective tastes, incomes, prices of
other goods, and expectations.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 03­01 The
nature and determinants of market
demand.
19.
award:
10.00 points
Ceteris paribus, which of the following is most likely to cause an increase in the quantity supplied of perfume?
An improvement in perfume­making technology.
An increase in the salaries paid to perfume makers.
→
An increase in the price of perfume.
An increase in the number of sellers of perfume.
If the price of a product is the only variable changing, then we can track changes in quantity supplied along the
supply curve.
Multiple Choice
20.
Difficulty: 2 Medium
Learning Objective: 03­02 The
nature and determinants of market
supply.
award:
10.00 points
Which of the following would not cause the market supply of cell phones to change?
Telecommunications are deregulated, and anyone who wants to can produce and sell cell
phones.
A cheaper technology for producing plastics used in producing cell phones is developed.
→
A reduction in the demand for cell phones causes the price to fall.
Taxes levied on cell phone production are reduced.
A change in the price of cell phones will cause a movement along the supply curve or a change in the quantity
supplied.
Multiple Choice
21.
Difficulty: 2 Medium
Learning Objective: 03­02 The
nature and determinants of market
supply.
award:
10.00 points
A rightward shift of the market demand curve for MP3 players, ceteris paribus, causes equilibrium
Price to increase and equilibrium quantity to decrease.
Price to decrease and equilibrium quantity to decrease.
→
Price to increase and equilibrium quantity to increase.
Price to decrease and equilibrium quantity to increase.
An increase in demand causes equilibrium price and equilibrium quantity to increase.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 03­04 What
causes market prices to change.
22.
award:
10.00 points
When the demand for coffee increases, ceteris paribus, the equilibrium price will also increase because
→
A shortage exists at the old equilibrium price.
There must be a surplus of the good.
The market supply and demand curves do not intersect.
Market demand must be upward­sloping.
When demand increases, if the equilibrium price doesn't change, quantity demanded will be greater than
quantity supplied, causing a shortage.
Multiple Choice
23.
Difficulty: 2 Medium
Learning Objective: 03­04 What
causes market prices to change.
award:
10.00 points
If the government places a binding or effective price ceiling on cancer­treating drugs, then
Fewer people will die from cancer.
→
More people will die from cancer.
There will be no change in the number of people who die from cancer.
The supply of cancer­treating drugs will increase.
Price ceilings increase the quantity demanded, decrease the quantity supplied, and create market shortages.
Multiple Choice
24.
Difficulty: 2 Medium
Learning Objective: 03­05 How
government price controls affect
market outcomes.
award:
10.00 points
Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would occur in each situation
for the market listed on the left, ceteris paribus.
Figure 3.1
Shifts of Supply and Demand
Candy bars: People become more health­conscious and prefer power bars instead of candy bars.
A.
B.
→
C.
D.
A change in tastes and preferences away from candy bars causes demand to decrease.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 03­04 What
causes market prices to change.
25.
award:
10.00 points
Which panel of Figure 3.3 represents the changes in the market for cigarettes when the government increases
subsidies for the production of tobacco and at the same time bans smoking in public buildings?
Figure 3.3
Shifts of Supply and Demand
A.
→
B.
C.
D.
A subsidy will encourage more production, causing supply to increase, and the ban on smoking will cause a
decrease in demand.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 03­04 What
causes market prices to change.
26.
award:
10.00 points
Which of the following statements about markets is not true?
→
Markets necessarily have a physical location.
Markets have both a demand side and a supply side.
The two types of markets include the factor and product markets.
Every market transaction involves an exchange of money for goods or resources or a direct
exchange of goods or resources without money called barter.
Markets exist wherever and whenever an exchange takes place, even in cyberspace.
Multiple Choice
27.
Difficulty: 2 Medium
Learning Objective: 03­03 How
market prices and quantities are
established.
award:
10.00 points
The optimal mix of output may not be produced by an economy because of the existence of
Inequity.
Internalities.
→
Public goods.
Production possibilities.
Public goods are a type of market failure that may prevent the market from achieving the optimal mix of output.
Multiple Choice
28.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
Government intervention may be appropriate to correct market outcomes because of
→
Externalities.
Private goods.
Production possibilities.
None of the choices are correct.
Externalities cause market failure, which establishes a basis for government intervention.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
29.
award:
10.00 points
Which of the following explains why flood control is a public good?
There are external benefits associated with its consumption.
The private sector usually produces flood control projects.
→
It is not divisible and therefore cannot be kept from people who do not pay.
Flood control is paid for by taxpayers.
A public good is a good or service whose consumption by one person does not exclude consumption by others.
One person cannot prevent others from benefiting from flood control.
Multiple Choice
30.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways
from using them. What type of market failure is involved?
Inequity.
→
Public goods.
Externalities.
Market power.
A public good is a good or service whose consumption by one person does not exclude consumption by others.
Multiple Choice
31.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
Which of the following is a merit good?
Cigarettes.
→
Food.
Local telephone service.
A computer operating system.
A merit good is a good or service that society deems everyone is entitled to some minimal quantity of, such as
food.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
32.
award:
10.00 points
When there is a decrease in the unemployment rate,
→
The economy moves closer to the production possibilities curve.
The production possibilities curve shifts outward.
The production possibilities curve shifts inward.
There is a movement along the production possibilities curve.
An output level on the production possibilities curve is consistent with full employment.
Multiple Choice
33.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
Which of the following is possible when the market fails?
→
The mix of goods and services is on the production possibilities curve.
It is impossible for government intervention to improve the mix of goods and services.
The mix of goods and services is at the correct point on the production possibilities curve.
The mix of goods and services is the optimal mix.
Market failure implies that market forces have not led us to the best point on the production possibilities curve.
Multiple Choice
34.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
The market will overproduce goods that have external costs because
→
Producers experience lower costs than society.
Producers experience higher costs than society.
The government is not able to produce these goods.
Producers cannot keep these goods from consumers who do not pay, so they have to produce
greater amounts.
If a product yields external costs, the social demand is less than the market demand.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
35.
award:
10.00 points
If Good X has social demand that is less than market demand, then Good X must be a
Public good.
→
Good with an external cost.
Good with an external benefit.
Good suffering from the free­rider problem.
The market responds to consumer demands, not externalities. External costs imply that the social demand is
less than (below) market demand.
Multiple Choice
36.
Difficulty: 2 Medium
Learning Objective: 04­01 The
nature and causes of market
failure.
award:
10.00 points
Which of the following would be included in U.S. GNP but not in U.S. GDP?
The tips received by a waiter in New Jersey.
Auto parts produced by a Japanese­owned firm operating in North Carolina.
Sales of used cars in the United States.
→
Chipsets produced by U.S.­owned firms operating in China.
To count in U.S. GDP, something must be produced within the borders of the United States.
Multiple Choice
37.
Difficulty: 2 Medium
Learning Objective: 05­01 What
GDP measures­and what it doesn
t.
award:
10.00 points
The increase in the market value of a good at a particular stage of production is known as
Profit.
→
Value added.
Cost based accounting.
The input price.
The value added is equal to the sales price minus the cost of intermediate goods.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 05­01 What
GDP measures­and what it doesn
t.
38.
award:
10.00 points
Which of the following would not be included in the calculation of GDP?
Income earned by an attorney.
Income earned by a CPA.
Contract work performed by an electrician.
→
Tips earned by a bartender who does not report them to the IRS.
Any income that is not reported from legal or illegal sources does not officially count in GDP.
Multiple Choice
39.
Difficulty: 2 Medium
Learning Objective: 05­01 What
GDP measures­and what it doesn
t.
award:
10.00 points
If the price level is 100 for 2005 and the price level is 106.5 in 2007, a nominal GDP in 2007 of $15,600 billion
would mean that real GDP in 2007 (in 2005 prices) would be closest to
→
$14,647.9 billion.
$15,600.0 billion.
$14,751.3 billion.
$13,971.2 billion.
Real GDP takes into account changes in the price level so that we are looking only at changes in actual
production. Real GDP is equal to nominal GDP divided by the price index and multiplied by 100:
($15,600/106.5) × 100.
Multiple Choice
40.
Difficulty: 2 Medium
Learning Objective: 05­02 The
difference between real and
nominal GDP.
award:
10.00 points
Which of the following is investment, according to an economist?
The purchase of U.S. savings bonds.
A collection of rare coins.
→
An increase in business inventories.
The purchase of a new family car.
Purchases of consumer durables and the allocation of one's personal wealth are not considered investment,
according to an economist.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 05­04 The
major submeasures of output and
income.
41.
award:
10.00 points
The base year for the calculation of real GDP for the hypothetical economy in Figure 5.2 is closest to
1960.
→
1980.
1990.
2000.
In the base year, nominal GDP equals real GDP since both are expressed using the same­year dollars.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 05­02 The
difference between real and
nominal GDP.
42.
award:
10.00 points
(Assume the figures above represent the working­age population).
What was the unemployment rate in Nationland in 1999?
rev: 08_09_2012
7.6 percent.
→
7.1 percent.
5.0 percent.
65.0 percent.
The unemployment rate is simply the number of people who are unemployed divided by the labor force: 5/(65 +
5).
Multiple Choice
43.
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
award:
10.00 points
When the labor force participation rate is declining, the
Unemployment rate is rising faster than the total population rate.
Percentage of the working­age population that is outside the labor force is declining.
→
Percentage of the working­age population that is willing and able to work is declining.
Percentage of the total population that is employed is rising.
A lower labor force participation rate means a smaller fraction of the population is employed or unemployed.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
44.
award:
10.00 points
In the early weeks of a recession, what type of unemployment gets larger?
Frictional.
Structural.
→
Cyclical.
Seasonal.
As demand falls off, the economy enters the downward portion of the business cycle that is characterized by
cyclical unemployment.
Multiple Choice
45.
Difficulty: 2 Medium
Learning Objective: 06­03 The
major types of unemployment.
award:
10.00 points
In terms of the musical chairs analogy in the text, which of the following is a description of structural
unemployment?
There are too few chairs.
There are too many chairs.
→
There are enough chairs, but some are not the right size.
There are enough chairs, but it takes time to find one.
Structural unemployment does not go away; many times the worker will need to be retrained for a new job.
Multiple Choice
46.
Difficulty: 2 Medium
Learning Objective: 06­03 The
major types of unemployment.
award:
10.00 points
Suppose there are 6 million unemployed workers actively seeking a job. After a period of time, 1,500,000 of these
workers become discouraged and no longer look for employment. If everything else remains constant, the
unemployment rate will
→
Decrease.
Increase.
Remain unchanged until the unemployed find a job.
Increase initially but decrease when the phantom unemployed receive unemployment benefits.
The official unemployment rate can mask actual unemployment.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
47.
award:
10.00 points
When unemployed people stop looking for jobs, the
Unemployment rate increases and the labor force increases.
→
Unemployment rate decreases and the labor force decreases.
Unemployment rate increases and the labor force decreases.
Unemployment rate decreases and the labor force increases.
When people stop looking for work, the "looking for work" portions of both the numerator and denominator get
smaller. Example: 4/(4 + 6) = 40%; 3/(3 + 6) = 33.3%.
Multiple Choice
48.
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
award:
10.00 points
If more teenagers stay in school longer rather than dropping out and entering the labor force,
The production possibilities curve shifts outward.
→
The production possibilities curve shifts inward.
The production possibilities curve remains unchanged.
The unemployment rate goes up.
Reducing resources such as labor due to more schooling will decrease the production possibilities curve.
Multiple Choice
49.
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
award:
10.00 points
After a fruitless two­year search for a job, a former executive gives up and decides to live off the land in the Rocky
Mountains. This former executive is considered
→
A discouraged worker.
Structurally unemployed.
One of the phantom unemployed.
Underemployed.
Discouraged workers are not actively seeking employment.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 06­01 How
unemployment is measured.
50.
award:
10.00 points
All of the following are true about outsourcing of jobs except that it
Occurs because labor is cheaper in other countries.
Increases specialization.
Reduces costs and increases profits for companies.
→
Ultimately leaves the United States worse off.
The United States benefits through outsourcing by paying lower prices for foreign factors of production, and job
losses are minimal as a fraction of the overall labor force.
Multiple Choice
51.
Difficulty: 2 Medium
Learning Objective: 06­03 The
major types of unemployment.
award:
10.00 points
Ceteris paribus, if structural unemployment increases, the economy is
Outside the production possibilities curve.
Inside the production possibilities curve.
On the fixed production possibilities curve.
→
On the production possibilities curve that shifts inward.
At the natural rate of unemployment (frictional + structural), the economy is on the production possibilities curve.
If any part of the natural rate of unemployment increases, the production possibilities curve shifts inward.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 06­04 The
meaning of full employment.
52.
award:
10.00 points
During the time period represented in Figure 7.1, Country A
Experienced periods of both inflation and deflation.
Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978.
→
Had no need for COLAs.
Experienced only inflation.
Since the CPI remained constant, the cost of living also remained constant; therefore there was no need for
COLAs.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
53.
award:
10.00 points
If you were interested in charting prices of resources used by producers of energy, which of the following would
you use?
→
The Producer Price Index (PPI).
The Consumer Price Index (CPI).
The GDP deflator.
The Cost of Living Adjustment (COLA).
Firms are better served by tracking the price level with the PPI, which looks more at things they are paying for.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
54.
award:
10.00 points
According to Figure 7.1 in Country A,
→
Relative prices may have been changing, but average prices were constant.
Relative prices were definitely constant.
Average prices and relative prices were definitely changing.
Average prices were constant, and unemployment was increasing.
As the textbook will later explain in great detail, many forces in both the private sector and public sector affect
the price level. In this case, the forces were balanced, and the price level was stable.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
55.
award:
10.00 points
Based on Table 7.1, the rate of inflation between 2003 and 2004, using the GDP deflator, was
2.4 percent.
→
2.9 percent.
6.2 percent.
4.1 percent.
The inflation rate is equal to the difference in the price index divided by the GDP deflator in 2003.
Multiple Choice
56.
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
award:
10.00 points
All of the following statements about inflation in the United States are correct except
Since the Great Depression, average prices have risen almost every year.
The inflation rate was 13.5 percent in 1980.
Prior to World War II, the United States experienced periods of both deflation and inflation.
→
Inflation was at its worst during the Great Depression.
During the Great Depression, deflation was actually a significant concern.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 07­04 The
broad causes of inflation.
57.
award:
10.00 points
The Producer Price Index (PPI) is the best index to measure average price changes faced by
Consumers.
→
Producers.
Importers.
Labor unions negotiating COLAs.
The PPI measures changes to the prices of things purchased by businesses.
Multiple Choice
58.
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
award:
10.00 points
According to the text, which group of assets increased the most in percentage terms from 1991 to 2001?
Housing.
Gold.
→
Stocks.
Bonds.
Inflation does not affect everyone equally; the way wealth is held has a big effect on whether one wins or loses
from inflation.
Multiple Choice
59.
Difficulty: 2 Medium
Learning Objective: 07­02 Why
inflation is a socioeconomic
problem.
award:
10.00 points
A friend tells you that his income has risen every year by 5 percent. At the same time, prices, on average, have
risen by 5 percent. Your friend claims he is better off. Your friend
→
Is experiencing money illusion.
Really is better off as he suggests.
Has experienced an increase in nominal and real income.
Has experienced an increase in real income only.
Since your friend is using only nominal income to determine if he's better off and his real income is remaining
constant, he is experiencing money illusion.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 07­02 Why
inflation is a socioeconomic
problem.
60.
award:
10.00 points
All of the following are true of the real interest rate except it
Is equal to the nominal interest rate minus the anticipated rate of inflation.
Is stabilized by ARMs.
Is the inflation­adjusted rate of interest.
→
Equals the foreign exchange rate minus the inflation rate.
The real interest rate equals the nominal interest rate minus the rate of inflation.
Multiple Choice
61.
Difficulty: 2 Medium
Learning Objective: 07­04 The
broad causes of inflation.
award:
10.00 points
Which of the following is not true for the GDP deflator?
→
It is based on a fixed basket of goods and services.
It refers to all goods and services produced in GDP.
It typically reveals a lower inflation rate than the CPI.
It reflects both price changes and market responses.
The GDP deflator changes as the production of goods and services changes; in this respect it is very up to date.
Multiple Choice
62.
Difficulty: 2 Medium
Learning Objective: 07­01 How
inflation is measured.
award:
10.00 points
The aggregate demand curve is downward­sloping because, other things being equal,
People buy fewer goods and services at lower average incomes.
→
People buy more goods and services at lower average prices.
A higher average price level will induce producers to offer more output than otherwise.
People buy more goods and services at higher average prices.
As the price level falls, buyers are willing and able to purchase more goods and services.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­03 The
nature of aggregate demand (AD)
and aggregate supply (AS).
63.
award:
10.00 points
Using Figure 8.1, a decrease in the quantity of aggregate demand resulting from the interest rate effect would be
depicted as a movement from point
B to point A.
A to point C.
B to point C.
→
C to point A.
When the interest rate rises because prices have risen, some spending is reduced since borrowing costs are
higher. This is known as the interest rate effect, which explains why the aggregate demand is downward­
sloping.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­04 How
changes in AD and AS affect
macro outcomes.
64.
award:
10.00 points
In Figure 8.1, an increase in government spending, ceteris paribus, is best represented as a movement from point
→
A to point B.
C to point A.
B to point C.
A to point C.
An increase in government spending actually increases aggregate demand, thereby causing the curve to shift to
the right.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­04 How
changes in AD and AS affect
macro outcomes.
65.
award:
10.00 points
Controversies between Keynesian, monetarist, and supply­side theories focus on the
→
Shape and sensitivity of aggregate demand and aggregate supply curves.
Existence or nonexistence of the aggregate supply curve.
Importance of international balances to the economy.
Usefulness of aggregate demand and supply to analyze adjustment of the macro equilibrium.
Any desired equilibrium can be attained, but how it happens depends on the shape of the aggregate demand
and aggregate supply curves and what causes them to shift; that is where the controversy comes in.
Multiple Choice
66.
Difficulty: 2 Medium
Learning Objective: 08­02 Why the
debate over macro stability is
important.
award:
10.00 points
If wages and prices are flexible, then a recession is best eliminated when prices
And wages both rise.
→
And wages both fall.
Rise and wages drop.
Drop and wages rise.
After the price and wage adjustment, quantity demanded increases and production increases again, and the
economy returns to its potential.
Multiple Choice
67.
Difficulty: 2 Medium
Learning Objective: 08­01 The
major macro outcomes and their
determinants.
award:
10.00 points
The determinants of macro outcomes include all of the following except
Internal market forces.
External shocks.
→
Prices.
Policy levers.
Macro outcomes such as output, jobs, prices, growth, and international balances are determined by internal
market forces, external shocks, and policy levers.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­01 The
major macro outcomes and their
determinants.
68.
award:
10.00 points
A vertical aggregate supply curve
Implies that supply­side policies will have no effect on the macro equilibrium.
→
Implies that aggregate demand shifts have no impact on output.
Is likely in the short run.
Reflects the inflexibility of prices and wages.
If aggregate demand shifts along a vertical aggregate supply curve, the price level may rise or fall, but the level
of output will remain constant.
Multiple Choice
69.
Difficulty: 2 Medium
Learning Objective: 08­04 How
changes in AD and AS affect
macro outcomes.
award:
10.00 points
In which of the following situations is the percentage change in real GDP always positive?
Depression.
Inflation.
Recession.
→
Growth recession.
A growth recession means very little growth, but some positive growth nonetheless.
Multiple Choice
70.
Difficulty: 2 Medium
Learning Objective: 08­01 The
major macro outcomes and their
determinants.
award:
10.00 points
If aggregate demand decreases and aggregate supply decreases, the level of real output will
Decrease, and the price level will definitely decrease.
Decrease, and the price level will definitely increase.
Either increase or decrease, but the price level will stay the same.
→
Decrease, but the price level is indeterminate.
Since both the aggregate demand and aggregate supply curves shift to the left, the output, which is on the
horizontal axis, must be lower; but the price level could rise, fall, or stay the same depending on the relative
changes in aggregate demand and aggregate supply.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­04 How
changes in AD and AS affect
macro outcomes.
71.
award:
10.00 points
Which combination of shifts of aggregate demand and supply would definitely cause an increase in real GDP?
Demand shifts to the left and supply shifts to the right.
Demand shifts to the left and supply shifts to the left.
→
Demand shifts to the right and supply shifts to the right.
Demand shifts to the right and supply shifts to the left.
When both curves shift to the right, output must rise because output is the variable on the horizontal axis.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 08­04 How
changes in AD and AS affect
macro outcomes.
72.
award:
10.00 points
In Figure 9.6, if full employment occurs at QA, then aggregate demand is
Just right, causing no cyclical unemployment.
→
Too great, causing an inflationary gap.
Too small, causing an inflationary gap.
Too great, causing a recessionary gap.
Since macro equilibrium falls to the right of the full­employment level of output, there will be an inflationary gap.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 09­05 How
and when macro failure occurs.
73.
award:
10.00 points
Which of the following will cause a decrease in U.S. gross exports?
An increase in foreign consumer income.
→
A decrease in foreign business purchases of U.S. output.
An increase in foreign wealth.
None of the choices are correct.
If foreign investment in U.S. capital goods falls, the demand for U.S. capital goods will decline.
Multiple Choice
74.
Difficulty: 2 Medium
Learning Objective: 09­01 What
the major components of
aggregate demand are.
award:
10.00 points
Which of the following will cause the aggregate demand curve to shift to the left?
→
A decrease in consumer and business confidence because of a terrorist attack.
A decrease in the interest rate.
A decrease in business taxes.
An improvement in technology.
Anything that causes one or more categories of GDP (consumption, investment, government expenditure, and
net exports) to decrease will lead to a decrease in the AD curve.
Multiple Choice
75.
Difficulty: 2 Medium
Learning Objective: 09­03 The
determinants of investment
spending.
award:
10.00 points
According to Keynesian theory, which of the following is not true at each short­term macro equilibrium?
The economy may or may not be at full employment.
The aggregate demand curve intersects the aggregate supply curve.
→
All macroeconomic goals are achieved.
Producers are selling everything they currently produce.
Some macroeconomics goals may not be achieved since the equilibrium could be below or above the full
employment level of output.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 09­01 What
the major components of
aggregate demand are.
76.
award:
10.00 points
In Figure 9.6, if full employment occurs at QB, then aggregate demand is
Too great, causing cyclical unemployment.
Too great, causing demand­pull inflation.
Too small, causing cyclical unemployment.
→
Just right, causing no cyclical unemployment.
At QB macro equilibrium corresponds to the full­employment level of output.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 09­05 How
and when macro failure occurs.
77.
award:
10.00 points
Given that autonomous consumption equals $1,000, disposable income equals $20,000, and the MPC equals
0.80, the level of
Saving equals $4,000.
Saving equals $19,000.
→
Consumption equals $17,000.
Consumption equals $16,000.
This corresponds to $16,000 of spending out of the $20,000 in income, plus the $1,000 in autonomous
consumption.
Multiple Choice
78.
Difficulty: 2 Medium
Learning Objective: 09­02 What
the consumption function tells us.
award:
10.00 points
Which of the following is not considered to be a private depository institution?
→
The Federal Reserve.
Mutual savings banks.
Savings and loan associations.
Commercial banks.
The Federal Reserve is the central bank and does not hold deposits for the general public.
Multiple Choice
79.
Difficulty: 2 Medium
Learning Objective: 13­02 How
banks create money.
award:
10.00 points
Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and bank reserves of $45,000.
Then this bank can make new loans in the amount of
$2,500.
$10,000.
$20,000.
→
$25,000.
The bank is required to hold $20,000. So its excess reserves of $25,000 can be converted into new loans.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 13­02 How
banks create money.
80.
award:
10.00 points
Students Bank and Trust has zero excess reserves. Ceteris paribus, if the required reserve ratio decreases.
Required reserves will increase.
Bank assets will decrease.
→
The bank will be able to make additional loans.
The money multiplier will decrease.
A decrease in the required reserve ratio will instantly create excess reserves, thereby allowing for more loans.
Multiple Choice
81.
Difficulty: 2 Medium
Learning Objective: 13­02 How
banks create money.
award:
10.00 points
If people never withdraw cash from banks and there are no required reserves, how much money can the banking
system potentially create for a given amount of new deposits?
None.
The same amount as the new deposits.
The amount of new deposits multiplied by the reserve ratio.
→
An infinite amount of money.
An infinite amount of money can be created because all deposits may lent out over and over again as new loans
become new deposits and so forth. Basically, with a reserve ratio of zero, the money multiplier is (1 ÷ required
reserve ratio) or infinity.
Multiple Choice
82.
Difficulty: 2 Medium
Learning Objective: 13­03 How
the money multiplier works.
award:
10.00 points
Which of the following explains why banks try to keep their holdings of excess reserves low?
→
To maximize profits.
To keep the money multiplier low.
To escape Fed penalties.
To please bank examiners.
By holding reserves, banks forgo the opportunity to earn profit from loans.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 13­02 How
banks create money.
83.
award:
10.00 points
Suppose a bank has $1 million in deposits, a required reserve ratio of 25 percent, and total reserves of $600,000.
Then it has excess reserves of
$250,000.
$600,000.
→
$350,000.
$1,000,000.
The bank is required to hold $250,000. So the extra $350,000 counts as excess reserves.
Multiple Choice
84.
Difficulty: 2 Medium
Learning Objective: 13­02 How
banks create money.
award:
10.00 points
The different components of the money supply reflect
→
Variations in liquidity and accessibility of assets.
Whether deposits are domestic or international.
How often depositors use their accounts.
Whether the deposits are earned or inherited.
The most basic forms of money are the most liquid, with additional forms being less liquid.
Multiple Choice
85.
Difficulty: 2 Medium
Learning Objective: 13­01 What
money is.
award:
10.00 points
Shoffner buys a bond in the amount of $1,000 with a promised interest rate of 18 percent. If the market interest rate
decreases to 3 percent, Shoffner can sell his bond for up to
$5,000.
→
$6,000.
$3,000.
$2,000.
The market interest rate will be the yield or return that the purchaser of the bond can expect to earn. Using the
yield formula and solving for the current price, one can determine the highest price an investor would be willing
to pay for this existing bond. Since the buyer will earn a 3 percent return or yield and the annual interest
payment will be $180, the bond will sell for up to $6,000 ($180/0.03). There is also a simpler way to do this.
Interest rates and bond prices have an inversely related correlation factor of ­1. To get the new principal, divide
the old interest rate by the new interest rate and multiply the quotient by the old principal. In this case, (18/3 ×
$1,000 = $6,000).
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 14­03 How
open market operations work.
86.
award:
10.00 points
Which of the following is not true for members of the Federal Reserve Board of Governors?
They are appointed to 14­year terms by the president of the United States.
They are relatively immune to short­term political pressures.
They may not be reappointed after serving a full term.
→
They usually serve two or three terms.
Members of the Board of Governors are restricted to just one 14­year term.
Multiple Choice
87.
Difficulty: 2 Medium
Learning Objective: 14­01 How
the Federal Reserve is organized.
award:
10.00 points
When the Fed raises the discount rate, all of the following result except
The cost of borrowing reserves for member banks increases.
It sends a signal that it is moving toward a slower growth rate for the money supply.
It sends a signal that it is reluctant to lend reserves.
→
It expands the lending capacity of the banking system.
A higher discount rate discourages borrowing from the Fed, thereby slowing the growth in the money supply.
Multiple Choice
88.
Difficulty: 2 Medium
Learning Objective: 14­02 The
Fed s major policy tools.
award:
10.00 points
Members of the Federal Reserve Board of Governors are appointed for one 14­year term so that they
Have time to learn how the Fed operates.
Are more likely to make politically acceptable decisions.
→
Make their decisions based on economic, rather than political, considerations.
Have enough time to travel to all 12 regional banks.
An independent Fed requires insulation from the political process so that what is best for the economy is
pursued, rather than what is good for an election year.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 14­01 How
the Federal Reserve is organized.
89.
award:
10.00 points
Which of the following represents the lending capacity of an individual (nonmonopoly) bank?
Required reserve ratio × total deposits.
→
Total reserves ­ required reserves.
(Total reserves ­ required reserves) × multiplier.
1 ÷ (required reserve ratio).
An individual bank can lend all its reserves except for a minimum percentage of its deposits that the bank is
required to maintain as established by the Fed.
Multiple Choice
90.
Difficulty: 2 Medium
Learning Objective: 14­02 The
Fed s major policy tools.
award:
10.00 points
Which of the following services is performed by the regional Federal Reserve banks?
Holding deposits for individuals.
Providing loans to individuals.
→
Providing currency to private banks.
Check cashing for large nonbank corporations.
Whenever a bank runs low on physical currency, the Fed can ship more to it, drawing it from the balance the
bank has on deposit with the Fed.
Multiple Choice
91.
Difficulty: 2 Medium
Learning Objective: 14­01 How
the Federal Reserve is organized.
award:
10.00 points
If the Fed wishes to reduce the money supply, it can do all of the following except
Raise the discount rate.
Raise the minimum reserve ratio.
Sell securities on the open market.
→
Buy shares of common stock in a large bank.
The traditional tools of the Fed include changing the discount rate, the reserve requirement, and open market
operations, with the last being the most popular.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 14­03 How
open market operations work.
92.
award:
10.00 points
Changing the reserve requirement is
→
A powerful tool that can cause abrupt changes in the money supply.
The most often­used tool on the part of the Fed.
A tool that has little impact on the money supply.
Effective in changing excess reserves but not the money supply.
Changing the required reserve ratio changes the excess reserves immediately and can result in banks quickly
trying to achieve the new required level of reserves, which will impact the overall economy.
Multiple Choice
93.
Difficulty: 2 Medium
Learning Objective: 14­02 The
Fed s major policy tools.
award:
10.00 points
The success of Fed intervention depends on how well
Congress performs when manipulating the money supply.
Individuals respond to the Fed's direct requests of the public.
The Treasury follows the Fed's directions for releasing money.
→
Changes in long­term interest rates closely follow changes in short­term interest rates.
Monetary policy will be less effective if the long­term rates diverge too far from short­term rates.
Multiple Choice
94.
Difficulty: 2 Medium
Learning Objective: 15­02 How
monetary policy affects macro
outcomes.
award:
10.00 points
According to Bernanke's policy guide, a half percentage point increase in long­term interest rates will
Increase AD by $50 billion.
→
Decrease AD by $100 billion.
Increase AS by $50 billion.
Decrease AS by $100 billion.
The rule used at present by the Fed suggests that we get a $50 billion boost from lowering the long­term rates
by 1/4 of a point. Therefore, if interest rates rise by 1/2 of a percentage point, aggregate demand decreases by
$100 billion.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 15­02 How
monetary policy affects macro
outcomes.
95.
award:
10.00 points
In Figure 15.2, the equilibrium rate of interest
Is 3 percent.
→
Is 6 percent.
Is 9 percent.
Cannot be determined from this figure.
The equilibrium interest rate corresponds to the interest rate that prevails when the money supply and money
demand curves intersect.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 15­01 How
interest rates are set in the money
market.
96.
award:
10.00 points
The Fed could sell bonds in the open market in an effort to keep interest rates constant when
The discount rate increases.
Money demand increases.
The reserve requirement increases.
→
Money demand decreases.
The Fed would try to equally match the drop in money demand with a drop in money supply, thereby stabilizing
interest rates.
Multiple Choice
97.
Difficulty: 2 Medium
Learning Objective: 15­01 How
interest rates are set in the money
market.
award:
10.00 points
The money supply curve is determined by all of the following except
Federal Reserve policy.
The lending behavior of private banks.
The willingness of individuals to borrow money.
→
The demand for money.
The money supply curve is determined by the Fed and is magnified by the money multiplier throughout the
banking system.
Multiple Choice
98.
Difficulty: 2 Medium
Learning Objective: 15­01 How
interest rates are set in the money
market.
award:
10.00 points
According to extreme monetarists, monetary policy affects
The velocity of money and level of employment.
Real output, investment, and the money supply.
→
Aggregate demand, prices, and nominal interest rates only.
Aggregate demand, real output, and real interest rates, with possible effects on prices and
nominal interest rates.
Monetary policy affects aggregate demand, prices, and nominal interest rates because V and Q are stable.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 15­04 The
differences between Keynesian
and monetarist monetary theories.
99.
award:
10.00 points
The speculative, transactions, and precautionary demands for money added together give the
→
Market demand curve for money.
Monetarist demand­for­money curve.
Keynesian liquidity trap.
Market supply curve for money.
Individuals hold money for everyday transactions and unexpected emergencies, and in case they need it to
invest in different assets.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 15­01 How
interest rates are set in the money
market.
award:
100.
10.00 points
The effectiveness of monetary policy is influenced by
→
The time it takes for lower interest rates to make investment spending more profitable.
The willingness of Congress to implement it.
How responsive the money supply is to changes in taxes.
Reports by the Congressional Budget Office.
Since there is a time lag between implementation of policy and the results, the economy may have changed
significantly, causing the policy to be destabilizing.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 15­02 How
monetary policy affects macro
outcomes.