E xam

N ame___________________________________

1) Electric car enthusiasts want to b u y more electric cars at a lo w er p rice. A ll of the follo w ing eventsw ould have this effect

1)

A) a decrease in the price of lithiu m, w hich is used in the electric car batteries.B) an increase in the price of gasoline.C) technological ad vancement in the prod uction of electric car batteries.D) an increase in the nu mber of manufacturers of electric cars.

2) W hich of the follo wing w ould cause the equilibri u m price of ketchu p to increase and theequilibri um quantity of ketchu p to decrease?

2)

A) an increase in the price of m ustard, a substitute for ketch u pB) a decrease in the price of tomatoesC) an increase in the price of tomatoesD) an increase in the price of french fries, a com plement for ketch u p

3) ________ is defined as a market outcome in w hich the marginal benefit to consu mers of the last unitprod uced is equal to the marginal cost of production, an d in w hich the su m of consu mer surplusan d prod ucer surplus is at a maxim u m.

3)

A) D ead w eight efficiency B) C onsumer efficiencyC) Prod ucer efficiency D) Economic efficiency

4) In a com petiti ve market the ________ curve sho ws the marginal benefit recei ved by consu mers an dthe ________ curve sho ws the marginal cost to prod ucers.

4)

A) deman d; market demand B) su p pl y; market su ppl yC) .deman d; su p ply D) sup pl y; demand

5) Tax incidence is the actual div ision of the 5)A) tax reven ues betw een govern ment agencies.B) burden of the tax betw een buyers and sellers in a market.C) tax reven ues betw een the federal government and state gov ernments.D) population into d ifferent tax brackets.

6) Buyers w ill bear the entire burden of a unit tax if the deman d curve for a prod uct is 6)A) horizontal. B) do w n ward sloping.C) u p w ard sloping. D) vertical.

7) W hich of the follo w ing w ould increase gross pri vate domestic in vestment in an econom y? 7)A) an increase in the nu mber of w orkers A p ple hiresB) an increase i n the level of A p ple's in ventoryC) an increase i n the number of high way construction projects the government is fundingD) an increase in the shares of A pp le stock households o w n

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8) W hich of the follo w ing w ould be inclu ded in the expen diture category called in vestmentexpenditures?

8)

A) a p urchase of a cop y machine by K in ko'sB) the cars held in in ventory on a local Ford dealer's lotC) a purchase of shares of preferred stockD) spen ding on new houses

9) W hich of the follo w ing transactions w ould take place in the " un dergroun d econom y "? 9)A) Eli zabeth tells her mother she's going to work but really goes to see a mov ie.B) Matt bought an iPhone for $299 but decided to sel l it on eBay instead of keeping it.C) Paul bu ys 15 gallons of gasoline for $2.29 a gallon, not realizing that $1.50 per gallon of that

price goes to the govern ment as tax re ven ue.D) John makes chain - link belts and neck laces an d sells them at a local flea market for cash to

avoid paying taxes.

10) If a country passes a labor law limiting the nu mber of hours of w ork per w eek, G D P w ould________ an d leisure w ou ld ________.

10)

A) increase; increase B) decrease; increaseC) increase; decrease D) decrease; decrease

11) W hich of the follow ing is an example of a w orker experiencing frictiona l unem ployment? 11)A) A U nited A irlines pilot loses her job because of lack of deman d for air trav el.B) A com p uter programmer loses her job because it is outsourced to In d ia.C) A w orker quits his job at the Post O ffice to fin d more interest ing w ork.D) A n em ployee is laid off because the econom y is suffering a recession.

12) M onthl y expen d itures for a famil y of 4 in 2008 averaged $1,400. In 2009, the cost of the samep urchases was $1,500. If 2008 is the base year, w hat w as the CPI in 2009?

12)

A) 110 B) 107 C) 100 D) 93

13) You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. T he C PI over thatyear rises from 180 to 200. W hat is the real interest rate you are pay ing?

13)

A) 15% B) 5% C) - 1.1% D) - 6.1%

14) W hich of the follow ing is a cost pose d by inflation? 14)A) F irms m ust pay for changing prices on prod ucts and printing ne w catalogs.B) T he money that consu mers an d firms hold loses its purchasing po w er.C) Inflation reduces the affordability of goods an d serv ices to the average consu mer.D) Ban ks can lose if they un der predict inflation an d charge an interest rate that does not

com pletely com pensate for inflation.

15) Labor prod uctiv ity is 15)A) the quantity of capital one w orker can prod uce i n one day.B) the quantity of outp ut produced in one hour by one machine.C) the quantity of output prod uced by one w orker or by one hour of work.D) the quantity of outp ut prod uced in one hour by several w orkers.

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16) A n increase in p ublic sav ing has w hat im pact on the market for loanable funds? 16)A) T he sup ply of loanable fu nds increases.B) T he demand for loanable fu nds increases.C) T he demand for loanable funds decreases.D) T he su p ply of loanable funds decreases.

17) Falling deman d for air travel in 2009 caused the demand curve for air travel to shift to the________, resulting in ________ ticket prices and a ________ quantity of tickets supp lied.

17)

A) right; lo w er; higher B) left; higher; lo w erC) left; lo w er; lo w er D) right; high er; higher

18) If aggregate expen diture is greater than G D P, ho w w ill the econom y reach macroeconomicequilibriu m?

18)

A) In ventories w ill rise, an d G D P and em ploy ment w ill rise.B) In ventories w ill decline, an d G D P an d em ploy ment w ill rise.C) In ventories w ill rise, an d G D P an d em ploy ment w ill decline.D) In ventories w ill decline, an d G D P an d em ploy me nt w ill decl ine.

19) If an increase in autonomous consu m ption spen ding of $25 million results in a $100 millionincrease in equilibriu m real G D P, then

19)

A) the is 0.25. B) the is 0.75.C) the is 0.8. D) the is 2.5.

20) W hich of the follo wing is a true statement about the multiplier? 20)A) T he form ula for the m ulti plier overstates the rea l w orl d m ultiplier w hen we take i nto account

the im pact of changes in G D P on im ports, inflation an d the interest rate.B) T he m ultiplier makes the econom y less sensiti ve to changes in autonomous expen diture.C) T he m ultiplier is the ratio of the change in spen ding to the change in G D P.D) T he larger the , the smaller the m ult iplier.

21) A n increase in the price level ________ real w ealth, w hich causes consu mption to ________. 21)A) raises; decrease B) lo w ers; increaseC) low ers; decrease D) raises; increase

22) A d ecrease in aggregate expen diture has w hat result on equilibriu m G DP? 22)A) Equilibriu m G D P falls.B) Equilibriu m G D P is not affected by a decrease in aggregate expen diture.C) Equil ibrium G DP rises.D) Equilibriu m G D P may rise or fall depend ing on the size of the decrease in aggregate

expen diture relati ve to the init ial level of G D P.

23) W hen the p rice level in the U nited States rises relati ve to the price level of other countries, ________w ill rise, ________ w ill fall, an d ________ w ill fall.

23)

A) net exports; imports; exports B) imports; exports; net exportsC) net exports; exports; im ports D) exports; im ports; net exports

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24) Sup pose a developing country experiences a red uction in machinery an d capital equip ment asforeign entrep reneu rs decrease the amount of investment in the econom y. A s a result,

24)

A) the long - ru n aggregate sup ply curve w ill shift to the right.B) the econom y w ill mov e u p along the long - ru n aggregate sup ply cur ve.C) the long - ru n aggregate su ppl y curve w ill shift to the left.D) the econom y w ill move dow n along the long - ru n aggregate sup ply cur ve.

25) W hich of the follo wing w ould cause the short- run aggregate su p ply curve to shift to the left? 25)A) an increase in inflation expectations B) a decrease in interest ratesC) a technological ad vance D) an increase in the price lev el

26) T he automatic mechanism ________ the price lev el in the case of ________ an d ________ the pricelevel in the case of ________.

26)

A) raises; expansion; raises; recession B) lo w ers; recession; raises; expansionC) raises; recession; lo wers; expansion D) lo wers; expansion; lo w ers; recession

27) Fiat money 27)A) is rarely used in modern economies.B) has no or very little value except as money.C) ser ves w ell as a mediu m of exchange, but not as a store of value.D) functions w ell only if can be red eemed for gold or other p recious metals.

28) If you liquidate $3,000 of your mutual fun d an d transfer the funds to your checking account, theni nitia ll y, M1 w ill ________ an d M2 w ill ________.

28)

A) increase; decrease B) not change; d ecreaseC) i ncrease; not change D) not change; not change

29) A cash w ithdrawal from the banking system 29)A) decreases reserves. B) decreases excess reser ves.C) decreases deposits. D) A ll of the above are correct.

30) To decrease the money su ppl y, the Federal Reserve could 30)A) raise the required reser ve ratio.B) raise income taxes.C) con d uct an open market p urchase of Treasury securities.D) low er the discount rate.

31) A n increase in the p urchasing po w er of money would not, on average, result in an increase in thep urchasi ng pow er of people's i ncome because a ________ price lev el w oul d li kely mean ________w ages and salaries.

31)

A) fa ll ing; falling B) falling; rising C) rising; rising D) rising; falling

32) Su p pose the Fed increases the money sup ply. W hich of the follo w ing is true? 32)A) A t the original interest rate, the quantity of money deman ded is greater than the quantity of

money su p plied.B) T he interest rate m ust rise for the money market to clear.C) A t the original interest rate, the quant ity of money deman ded is equal to the quantity of

money su p plied.D) A t the original interest rate, the quant ity of money deman ded is less than the quantity of

money su p plied.

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33) If the Fed lo w ers its target for the federal fu n ds rate, this in dicates that 33)A) the Fed is concerned that the gro w th in aggregate demand w ill exceed potential G DP.B) the F ed is attem pting to combat inflation.C) the Fed is p ursuing an expansionary monetary policy.D) the Fed is p ursuing a contractionary monetary policy.

34) Acti ve changes in tax an d spen ding by government inten ded to smooth out the business cycle arecalled ________, an d changes in taxes an d spen ding that occur passi vely ov er the business cycle arecal led ________.

34)

A) automatic stabili zers; discretionary fiscal policyB) automatic stabilizers; monetary policyC) discretionary fiscal policy; automatic stabilizersD) discretionary fiscal policy; conscious fiscal policy

35) A n increase in govern ment spen ding may expedite recovery from a recession in the short run, butin the long run this policy may

35)

A) re d uce in vestment in ne w capital.B) raise interest rates an d red uce consu mer expenditures on automobiles an d ne w houses.C) make domestic businesses less com petiti ve in international markets as the dollar ap preciates

i n val ue.D) A ll of the above are correct.

36) Su p pose the govern ment wants to maintain a balanced bu dget. To achieve this goal, w hen theeconom y falls into recession govern ment w oul d need to ________ taxes, w hich w ould causeaggregate deman d to ________.

36)

A) increase; decrease B) decrease; decreaseC) increase; increase D) decrease; increase

37) In the long r un, the Phill ips cu rve is a ________ at ________. 37)A) negati vely sloped line; the intersection of aggregate deman d an d short- ru n aggregate su ppl yB) v ert ical line; the natural rate of unem ploy mentC) horizontal line; 0% inflationD) N one of the above are correct.

38) If rational w orkers an d firms k now that the Federal Reserve is follo w ing a contractionary monetarypolicy, they w ill expect inflation to ________ an d w ill ad just wages so that the real wage ________.

38)

A) increase; remains unchanged B) decrease; remains unchangedC) i ncrease; decreases D) decrease; increases

39) A n econom y that does have interactions in trade or finance w ith other economies is referred toas

39)

A) a closed economy. B) a net foreign in vestment economy.C) an open economy. D) a trade - balanced economy.

40) A decrease in U nited States net foreign direct inv estment would occur if 40)A) U.S. citizens have decreased the value of foreign stocks an d bon ds they o w n.B) net capital flo ws increase.C) net foreign in vestment decreases.D) U .S. citi zens have decreased their building or p urchasing of facil it ies in foreign countries.

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41) In international exchange markets, a rise in interest rates in the U nited States w ill cause the deman dfor dollars to ________ and the sup p l y of dollars to ________.

41)

A) increase; increase B) decrease; decreaseC) decrease; increase D) increase; decrease

42) If the deman d for the yen increases relati ve to the dollar, w hich of the follo w ing w ould occur? 42)A) T he dollar w il l depreciate. B) T he dollar w ill ap preciate.C) T he yen w ill depreciate. D) T he demand for the dollar w ill increase.

43) If the Fed p ursues an expansionary monetary policy, in vestment in the U nited States w ill ________an d net exports w ill ________.

43)

A) decrease; increase B) decrease; decreaseC) increase; decrease D) increase; increase

44) In an open econom y, expansionary monetary policy will cause 44)A) consu m ption to rise, but in vestment an d net exports w ill fa ll.B) consu m ption and investment to rise, but net exports w ill fa ll.C) consu m ption to fall, but inv estment an d net exports will rise.D) consu m ption, inv estment, an d net exports to rise.

45) A d ecision by foreign central ban ks to sell their holdings of U .S. T reasury bon ds w ill 45)A) increase bon d prices an d lo wer interest rates in the U nited States.B) increase bon d prices and interest rates in the U nited States.C) lo wer bond prices an d interest rates in the U nited States.D) low er bon d prices an d increase interest rates in the U nited States.

46) W hen the value of a currency is determined ________, the exchange rate system is defined as afloating exchange rate system.

46)

A) mostly by su p ply and deman d, but w ith occasional government interventionB) by its issuing governmentC) by its issuing government, w ith occasional read justments i n val ueD) only by sup ply an d deman d

47) Since the o w ners of the Toronto Blue Jays collect most of their revenues in Canadian dollars an dpay most of their expenses in U.S. dollars, they w oul d

47)

A) benefit is the U.S. dollar ap preciates relati ve to the Canadian dollar.B) benefit if the Canadian dollar appreciates relati ve to the U .S. dollar.C) benefit if the Canadian dollar dep reciates relat ive to the U .S. dollar.D) Both A an d C are correct.

48) A ll of the follo wing are considered among the four most important determinants in explainingexchange rate fluctuations in the long run

48)

A) tariffs an d quotas.B) relati ve rates of prod ucti v ity gro w th across countries.C) interest rates.D) preferences for domestic an d foreign goods.

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49) A Big Mac costs $3.57 in the U nited States an d 7.80 zlotys in Polan d. If the exchange rate is 3 zlotysper dollar, p urchasing po w er parity predicts that

49)

A) the zloty is overvalued.B) the dollar is over valued.C) the dollar is un der valued.D) both the zloty an d dollar are un dervalued.

50) Pegging a country's exchange rate to the dollar can be ad vantageous in all of the follow ingsituations

50)

A) if im ports are a significant fraction of the goods the cou ntry's consu mers bu y.B) if the country has extensi ve trade w ith the U nited States.C) if a country w ishes to con d uct in depen dent monetary policy.D) if in vestors believe the dollar to be more stable than the domestic country's currency.

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