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1) The modern tools of macroeconomic policy are:

1. capital policy and labor policy
2. fiscal policy and monetary policy
3. monetary policy and exchange rate policy
4. tax policy and antitrust policy

Reveal answer 2) If the economy exhibited an inflationary gap, the government should follow:

1. a contractionary policy, which would shift the AD curve to the left
2. a contractionary policy, which would shift the AD curve to the right
3. an expansionary policy, which would shift the AD curve to the left
4. an expansionary policy, which would shift the AD curve to the right

Reveal answer 3) Which of the following demonstrates how people respond to incentives to make themselves better off?

1. More students major in economics when they hear that salaries for economists are
2. Students are assigned dorm rooms through a lottery system
3. Students are encouraged to donate blood because it is the “right thing to do.”
4. rising

Reveal answer 4) Milk is an important ingredient in the production of ice cream. If the price of milk increases, then one would expect, holding all other things constant:

1. a movement along the supply curve for ice cream curve, resulting in more ice
2. no change in the supply curve for ice cream
3. the supply curve for ice cream to shift left
4. the supply curve for ice cream to shift right

Reveal answer 5) Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Molly. That bank can lend an additional:

1. $100
2. $300
3. $800
4. $900

Reveal answer 6) All points on the production possibility frontier are: A) efficient production points.

1. economic growth
2. inefficient production points
3. infeasible production points

Reveal answer 7) Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

1. The price will decrease and quantity will decrease
2. The price will decrease, but quantity may increase, decrease, or stay the same
3. The price will increase and quantity will increase
4. The price will increase, but quantity may increase, decrease, or stay the same

Reveal answer 8) The topics studied in macroeconomics include:

1. economic growth
2. inflation
3. inflation, unemployment, and economic growth
4. unemployment

Reveal answer 9) If the MPC is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

1. $200 million
2. $250 million
3. $40 million
4. $50 million

Reveal answer 10) Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:

1. $10.5 trillion
2. $6.5 trillion
3. $7.5 trillion
4. $9 trillion

Reveal answer 11) If the economy is at equilibrium below potential output:

1. there is a recessionary gap, and contractionary fiscal policy is appropriate
2. there is a recessionary gap, and expansionary fiscal policy is appropriate
3. there is an inflationary gap, and contractionary fiscal policy is appropriate
4. there is an inflationary gap, and expansionary fiscal policy is appropriate

Reveal answer 12) A firm uses financial leverage when it:

1. borrows money from a bank to enlarge a factory
2. gets a volume discount from a supplier
3. raises the price of a product when demand is inelastic
4. replaces labor with capital

Reveal answer 13) Scarcity exists when:

1. individuals can have more of any good
2. individuals can have more of one good but only at the expense of another
3. making choices among two or more alternatives is not necessary
4. resources are unlimited

Reveal answer 14) A shift of the demand curve for thin-crust pizza would not be caused by a change in:

1. buyers' incomes
2. the popularity of thin-crust pizza
3. the price of thick-crust pizza
4. the price of thin-crust pizza

Reveal answer 15) Which of the following is likely to cause a rightward shift in the demand for home-delivered pizza?

1. a higher price of pepperoni
2. a larger population
3. a lower price of fast-food hamburgers
4. a lower price of pizza

Reveal answer 16) An inflationary gap can be closed with:

1. a decrease in government purchases
2. a decrease in taxes
3. expansionary fiscal policy
4. expansionary monetary policy

Reveal answer 17) Which of the following statements is correct?

1. A change in quantity demanded is a movement along the demand curve, and a
2. Both a change in quantity demanded and a change in demand are movements along
3. quantity demanded is a shift of the demand curve
4. the demand curve, only in different directions

Reveal answer 18) Which of the following is NOT an example of government transfers?

1. Medicaid-paid prescription drugs for low-income individuals
2. a Social Security disability pension
3. a reimbursement of personal income tax withheld from wages
4. unemployment insurance

Reveal answer 19) Economic models are:

1. created and used to duplicate reality
2. made generally of wood, plastic, and/or metal
3. often useful in forming economic policy
4. useless if they are simple

Reveal answer 20) Economists have identified several consecutive months of falling employment and forecasts for the next few months suggest more of the same. At what point in the business cycle is the economy?

1. business-cycle peak
2. business-cycle trough
3. expansion
4. recession

Reveal answer 21) Among the assets of a bank are:

1. borrowings
2. deposits
3. deposits and loans
4. loans

Reveal answer 22) A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:

1. a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices
2. a decrease in the demand for poultry, leading to a shift to the right in the demand curve for poultry and lower beef prices
3. a decrease in the supply of poultry, leading to a shift to the left in the supply curve for poultry and higher poultry prices
4. an increase in the supply of poultry, leading to a shift to the right in the supply curve for poultry and higher poultry prices

Reveal answer 23) The purpose of macroeconomic policy is to:

1. bring unemployment closer to the natural rate
2. bring unemployment closer to the natural rate, rein in excessively strong
3. reduce the severity of recessions
4. rein in excessively strong expansions

Reveal answer 24) An increase in the nation's overall price level is:

1. deflation
2. inflation
3. long-term economic growth
4. unemployment

Reveal answer 25) Deflation:

1. assets
2. can result in an increase in employment
3. encourages people to hold cash rather than invest in new factories and productive
4. raises the cost of making purchases and sales for which cash is required

Reveal answer 26) If the Federal Reserve wanted to increase the money supply, it could:

1. decrease the required reserve ratio, decrease the discount rate, and buy bonds on the open market
2. decrease the required reserve ratio, increase the federal funds rate, and sell bonds on the open market
3. increase the personal tax rate, decrease the required reserve ratio, and buy bonds on the open market
4. increase the required reserve ratio, increase the personal tax rate, and sell bonds on the open market

Reveal answer 27) Long-run growth is:

1. the downturn phase of business cycles
2. the expansion phase of business cycles
3. the sustained downward trend in the employment rate over several decades
4. the sustained upward trend in aggregate output per person over several decades

Reveal answer 28) If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.

1. increase government purchases; AD; left
2. increase government purchases; AD; right
3. increase tax rates; AD; right
4. increase transfer payments; AS; right

Reveal answer 29) A key theme fundamental to all of economics is:

1. People have unlimited wants facing limited means to satisfy them
2. There are limited wants
3. There are unlimited resources
4. We are a rich country but are simply not aware of it

Reveal answer 30) An increase in the price of hamburger would probably result in ________ in the demand for hamburger buns.

1. a decrease
2. an increase
3. no change
4. random fluctuations

Reveal answer 31) An economic expansion in the United States is typically associated with:

1. a decrease in corporate profits
2. a falling inflation rate
3. a falling unemployment rate
4. an increase in the poverty rate

Reveal answer 32) Funding for Social Security and Medicare:

1. can be accomplished with lower taxes in the future
2. comes from dedicated taxes
3. is likely to increase with the retirement of baby boomers
4. must come from government borrowing

Reveal answer 33) If the demand for tires goes down when the price of gas goes up, then tires and gas are:

1. both expensive
2. both inexpensive
3. complements
4. substitutes

Reveal answer 34) Which of the following is true concerning the monetary aggregates?

1. M1 includes M2 but not the gold stock
2. M2 includes M1
3. M2 includes the gold stock but not M1
4. The gold stock backs M2 but not M1

Reveal answer 35) When a bank lends excess reserves to a customer:

1. it has the same effect as when one customer writes a check to another customer at a different bank
2. the money supply is decreased
3. the money supply is increased
4. this does not affect the money supply

Reveal answer 36) Good X and good Y are related goods. Holding everything else constant, if the price of X decreases and the demand for Y increases, then this most likely means that X and Y are:

1. complements
2. substitutes. C) inferior. D) normal

Reveal answer 37) If all of the households and businesses in the economy start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as:

1. the crowding-out theory
2. the paradox of thrift
3. the permanent income hypothesis
4. the quantity theory

Reveal answer 38) Recessions are periods when:

1. output and employment are falling
2. output rises
3. the aggregate price level rises
4. the unemployment rate is falling

Reveal answer 39) A change in taxes or a change in government transfers affects consumption through a change in:

1. autonomous consumption
2. disposable income
3. government spending
4. the marginal propensity to save

Reveal answer 40) Suppose an economy has rising total output accompanied by increasing employment. This is generally known as:

1. expansion
2. inflation
3. recession
4. stagflation

Reveal answer 41) An expansionary fiscal policy:

1. may include decreases in government spending
2. may include decreases in taxes
3. may include increases in taxes
4. usually decreases a government budget deficit or increases a government budget surplus

Reveal answer 42) If a bank has assets equal to $100 million dollars, according to practice, its liabilities should NOT exceed:

1. $107 million
2. $7 million
3. $70million
4. $93 million

Reveal answer 43) The existence of banks:

1. inhibits the creation of money
2. makes the money supply equal to the amount of currency in circulation
3. results in the money supply being larger than the amount of currency in circulation
4. results in the money supply being less than the amount of currency in circulation

Reveal answer 44) All points inside the production possibility frontier represent:

1. economic growth
2. efficient production points
3. inefficient production points
4. infeasible production points

Reveal answer 45) The short-run alternation between economic downturns and recessions, then economic upturns and expansions is known as the:

1. business cycle
2. contractionary cycle
3. disequilibrium cycle
4. expansionary cycle

Reveal answer 46) Which of the following is near-money?

1. a credit card
2. a debit card
3. a savings account
4. a traveler's check

Reveal answer 47) The primary emphasis in macroeconomics is on:

1. bits and pieces of the economy
2. how firms set prices
3. marginal analysis
4. the national economy

Reveal answer 48) High-fructose corn syrup, which is derived from corn, is an important ingredient in the production of many soft drinks. If the price of corn increases, one would expect:

1. the demand for soft drinks to increase
2. the quantity supplied of soft drinks to increase
3. the supply curve for soft drinks to shift left
4. the supply curve for soft drinks to shift right

Reveal answer 49) Macroeconomics involves the study of the:

1. cost and production decisions made by firms
2. different market structures that exist in the economy
3. individual decision makers in the economy
4. overall behavior of the economy

Reveal answer 50) The trade balance is the difference between the value of the:

1. and services it buys in return
2. exchange rates of two countries that are engaged in international trade
3. goods and services that a country sells to other countries and the value of the goods
4. trade deficit and the budget deficit

Reveal answer 51) Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If current real GDP is $850, which of the following policies would bring the economy to potential output?

1. Decrease government spending by $10 billion
2. Decrease government spending by $50 billion
3. Decrease government transfers by $50 billion
4. Increase government spending by $50 billion

Reveal answer 52) What can the federal government do to finance a deficit?

1. borrow funds
2. cut taxes
3. increase spending
4. reduce interest rates

Reveal answer 53) Which of the following policies is most likely to reduce traffic congestion in a large metropolitan area?

1. a limited number of free “early bird” parking passes given only to those who arrive
2. a toll road that requires each car to pay a fee to enter the city center
3. an increase in the price of subway and bus fare to and from the city
4. prior to 6 A.M

Reveal answer 54) Which of the following is a normative statement?

1. Higher expenditures on health care will reduce infant mortality rates
2. Increased defense spending will lead to higher budget deficits
3. International trade leads to expanded consumption opportunities
4. We would all be better off if we could reduce our dependence on oil imports

Reveal answer 55) Excess supply occurs when:

1. the equilibrium price
2. the price is below the equilibrium price
3. the quantity demanded exceeds the quantity supplied
4. the quantity demanded exceeds the quantity supplied and when the price is below

Reveal answer 56) When a market is in equilibrium, one will find that the:

1. quantity demanded is equal to quantity supplied
2. quantity demanded is equal to zero
3. quantity demanded is greater than quantity supplied
4. quantity supplied is zero

Reveal answer 57) An expansion is a period in which:

1. output declines
2. output rises
3. the price level falls
4. unemployment rises

Reveal answer 58) If the marginal propensity to save is 0.1, then the government spending multiplier has a value of

1. 10
2. 9
3. one-ninth
4. one-tenth

Reveal answer 59) Which of the following would shift the demand curve for new textbooks to the right?

1. a decrease in the price of paper
2. a fall in the price of new textbooks
3. a fall in the price of used textbooks
4. an increase in college enrollment

Reveal answer 60) All of the following are responsibilities of the Federal Reserve EXCEPT to:

1. control the monetary base
2. mint bills and coins
3. oversee and regulate the banking system
4. set the discount rate

Reveal answer 61) A rubbernecking traffic jam is an example of:

1. an outcome smaller than the sum of its parts
2. individual behavior that has a large aggregate impact
3. microeconomics in action
4. the paradox of thrift

Reveal answer 62) The reserve ratio is defined as the ratio of:

1. bank assets to bank liabilities
2. bank assets to bank reserves
3. bank reserves to customers' bank deposits
4. customers' bank deposits to bank assets

Reveal answer 63) To change the money supply, the Federal Reserve most frequently uses:

1. changes in the discount rate
2. changes in the inflation rate
3. changes in the required reserve ratios
4. open-market operations

Reveal answer 64) A shift of a demand curve to the right, all other things unchanged, will:

1. decrease equilibrium price and quantity
2. decrease equilibrium quantity and increase equilibrium price
3. increase equilibrium price and quantity
4. increase equilibrium quantity and decrease equilibrium price

Reveal answer 65) A simplified representation that is used to study a real situation is called:

1. a model
2. a production possibility frontier
3. a trade-off
4. an assumption

Reveal answer 66) Good X and good Y are related goods. If the price of good X increases and the demand for good Y shifts left, these goods are:

1. complements
2. inferior. D) normal
3. substitutes

Reveal answer 67) To close a recessionary gap by employing fiscal policy, the government could:

1. increase national savings so that the interest rate falls
2. lower the amount of unemployment insurance benefits
3. lower the annual income exempt from paying the personal income tax
4. lower the corporate income tax rate

Reveal answer 68) Generally, the more liquid an asset is:

1. the higher its capacity to store value over time
2. the higher its rate of return
3. the lower its purchasing power
4. the lower its rate of return

Reveal answer 69) With inflation:

1. all prices must be increasing
2. may be decreasing
3. overall prices are increasing, although some prices may be increasing and some
4. the economy must be contracting

Reveal answer 70) The demand curve for running shoes has shifted to the right. What could have caused it?

1. a fall in the price of running shoes
2. an increase in the income of buyers of running shoes
3. an increase in the price of running shoes
4. an increase in the supply of running shoes

Reveal answer 71) Price stability occurs when:

1. food prices have remained the same
2. the economy is at full employment
3. the overall cost of living is changing very slowly
4. the overall price level is zero

Reveal answer 72) As long as people have different ________, everyone has a comparative advantage in something.

1. benefits
2. direct costs
3. opportunity costs
4. utility

Reveal answer 73) The market equilibrium is found at the:

1. highest price the market will bear
2. price where quantity demanded equals quantity supplied
3. price where quantity demanded exceeds quantity supplied
4. price where quantity supplied exceeds quantity demanded

Reveal answer 74) If a country sold more goods and services to the rest of the world than it purchased from the other countries, then the country has a:

1. budget deficit
2. budget surplus
3. trade deficit
4. trade surplus

Reveal answer 75) The 2009 American Recovery and Reinvestment Act was an example of:

1. a contractionary government policy
2. a contractionary monetary policy
3. an automatic stabilizer
4. an expansionary fiscal policy

Reveal answer 76) When the budget is in deficit, the government generally:

1. decreases military spending
2. increases the public debt
3. raises taxes
4. sells public assets like national parks

Reveal answer 77) Periods in which output and employment are falling are known as:

1. booms
2. expansions. D) deflations
3. recessions

Reveal answer 78) According to the circular-flow diagram, which of the following economic agents engages in consumer spending?

1. factor markets
2. financial markets
3. firms
4. households

Reveal answer 79) The paradox of thrift highlights:

1. how an increase in spending occurs during recessions
2. how individual decisions to save more may worsen a recession
3. the irrational behavior on the part of households
4. the role investment plays in the macroeconomy

Reveal answer 80) Fiscal and monetary policies:

1. are most effective in microeconomic settings
2. are used to correct for short-term economic fluctuations
3. have been used by the government for over 250 years
4. have no role in macroeconomic policies

Reveal answer 81) Which of the following is an expansionary fiscal policy?

1. a decrease in government spending on the space program
2. an increase in taxes that reduces the budget deficit and decreases consumption
3. an increase in the money supply that decreases interest rates
4. an increase in unemployment benefits

Reveal answer 82) A contraction in the business cycle is:

1. accompanied by an increase in employment
2. called a recession
3. called the long run
4. viewed as a rarity

Reveal answer 83) If the marginal propensity to consume is 0.75 and the federal government increases spending by $100 billion, the income expenditure model would predict that real GDP will increase by:

1. $100 billion
2. $300 billion
3. $400 billion
4. $750 billion

Reveal answer 84) Congress increases personal income tax rates in order to balance the budget. Which of the following is likely to result?

1. Automatic stabilizers will decrease the contractionary impact of the decrease in aggregate demand
2. Automatic stabilizers will decrease the expansionary impact of the increase in aggregate demand
3. Automatic stabilizers will increase the contractionary impact of the decrease in aggregate demand
4. Automatic stabilizers will increase the expansionary impact of the increase in aggregate demand

Reveal answer 85) Banks create money when they:

1. hold excess reserves
2. make loans
3. pay withdrawals to depositors
4. take deposits

Reveal answer 86) If wages grew at a 5% rate last year and average prices grew at a 3% rate, then the average worker is:

1. better off
2. no better or worse off
3. unaffected
4. worse off

Reveal answer 87) Which of the following is not an example of a government transfer payment?

1. Medicaid
2. Medicare
3. Social Security
4. environmental protection programs

Reveal answer 88) The government deficit:

1. collects in tax revenues in a given period
2. is much higher than the government debt
3. is the essentially the same as the government debt
4. measures the difference between the amount government spends and the amount it

Reveal answer 89) To_________ the money supply, the Federal Reserve could ________.

1. decrease; conduct open-market purchases
2. decrease; lower the discount rate
3. increase; lower the reserve requirements
4. increase; raise the federal funds rate

Reveal answer 90) During a recession, one will often observe:

1. rising aggregate output
2. rising employment rates
3. rising unemployment rates and falling aggregate output
4. zero unemployment rates

Reveal answer 91) Which of the following combination of assets is considered to be money?

1. currency in circulation and in bank vaults, checkable bank deposits, and credit cards
2. currency in circulation and in bank vaults, checkable bank deposits, and travelers' checks
3. currency in circulation, checkable bank deposits, and credit cards
4. currency in circulation, checkable bank deposits, and travelers' checks

Reveal answer 92) If the Federal Reserve wants to increase the money supply, it will:

1. cut taxes across the board
2. increase the discount rate
3. lower the reserve requirement
4. sell U.S. Treasury bills

Reveal answer 93) An overall decrease in the price level is called.

1. deflation
2. inflation
3. long-run growth
4. the result of an increase in economic production

Reveal answer 94) Economists believe that the budget should be balanced each fiscal year. Is this correct?

1. No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well
2. Yes, a budget should be balanced annually, otherwise persistent budget deficits can cause havoc in the economy
3. Yes, as the law states that both the federal and state government budgets should always be balanced
4. Yes, since the balanced budget multiplier is larger, hence it makes the economy grow faster

Reveal answer 95) Which of the following is NOT true about bank runs?

1. Bank runs often lead to a loss of faith in other banks, causing additional bank runs
2. Bank runs typically only happen to small banks with few financial assets
3. Many banks' depositors try to withdraw their funds due to fears of a bank failure
4. They may start as a result of a rumor that a bank is in financial trouble

Reveal answer 96) In many countries, economists adopt the rule that a recession is a period of at least ______ during which aggregate output falls.

1. a full year
2. one quarter
3. three consecutive quarters
4. two consecutive quarters

Reveal answer 97) When a bank borrows from the Federal Reserve, it pays the:

1. discount rate
2. federal funds rate
3. prime rate
4. required reserve ratio

Reveal answer 98) If the tax rate is 0.1 and the MPC is 0.5:

1. the multiplier is equal to 1
2. the multiplier is equal to 1.8
3. the multiplier is equal to 2
4. the multiplier is equal to 2.1

Reveal answer 99) Fiscal policy involves:

1. changes in government spending
2. changes in interest rates
3. changes in the quantity of money
4. changes in the quantity of money and interest rates

Reveal answer 100) A reduction in government transfers ________, therefore shifting the aggregate demand curve to the ________.

1. decreases disposable income and consumption; left
2. decreases government purchases of goods and services, decreasing consumption; right
3. increases labor costs to companies, increasing investment; left
4. increases the marginal propensity to save, decreasing consumption; right

Reveal answer 101) Commoditymoneyis:

1. a good used as a medium of exchange that has other uses
2. money used for commodity futures trading
3. whatever people accept as money
4. whatever the government has decreed is money

Reveal answer 102) An example of a positive statement is:

1. a high rate of economic growth is good for the country
2. baseball players should not be paid higher salaries than the president of the United
3. everyone in the country should be covered by national health insurance
4. the rate of unemployment is 4%

Reveal answer 103) If the economy grew at a 3% rate this year and average prices increased ______, people would be better off this year than last year.

1. 3%
2. faster than 10%
3. faster than 3%
4. less than 3%

Reveal answer 104) Contractionary fiscal policy causes the aggregate demand curve to shift to the _______ and is used to close a(n) _______ gap.

1. left; inflationary
2. left; recessionary
3. right; inflationary
4. right; recessionary

Reveal answer 105) Bank runs in the United States during the 1930s had a large negative impact on the economy because:

1. capital requirements prevented bank managers from taking additional lending risks
2. the Federal Reserve system did not exist at the time
3. the loss of confidence at one bank quickly extended to other banks
4. the reserve ratio was set too high

Reveal answer 106) A business cycle is:

1. a period in which output and employment are falling
2. a period in which output and employment are rising
3. a short-run alternation between economic upturns and downturns
4. a very deep and prolonged economic downturn

Reveal answer 107) The problem of scarcity is confronted by:

1. all societies
2. industrialized societies only
3. preindustrialized societies only
4. societies governed by communist philosophies only

Reveal answer 108) When an economy is in an expansion, unemployment:

1. and overall prices tend to fall
2. and overall prices tend to rise
3. tends to fall, and overall prices tend to rise
4. tends to rise, and overall prices tend to fall

Reveal answer 109) When an economy is operating between the business cycle trough and the business cycle peak, it is called:

1. a contraction
2. a short-run phenomenon
3. an expansion
4. the beginning of a fall in aggregate spending

Reveal answer 110) The money multiplier is equal to:

1. 1 divided by excess reserves
2. 1 divided by the reserve ratio
3. 1 minus the reserve ratio
4. the reserve ratio plus excess reserves divided by the reserve ratio

Reveal answer 111) When the Great Depression reached its trough in 1933, the unemployment rate was approximately:

1. 5%. B) 10%. C) 25%. D) 50%

Reveal answer 112) Suppose a bank faces a 10% required reserve ratio and it has $100 in required reserves. If it is fully loaned out, what is the amount of deposits into this bank?

1. $1,000
2. $10
3. $10,000
4. $900

Reveal answer 113) An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market?

1. Both the equilibrium price and quantity will decrease
2. Both the equilibrium price and quantity will increase
3. Equilibrium price will increase, but equilibrium quantity may decrease, increase, or
4. Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same

Reveal answer 114) A bank run can break a bank because:

1. banks cannot quickly convert illiquid loans into liquid assets without facing a large financial loss
2. borrowers default on their loans, and the bank's assets become worthless
3. depositors' panic spreads to borrowers, who want to take additional loans from the bank
4. the bank's reserves kept with the Federal Reserve are in the form of illiquid U.S. Treasury bonds

Reveal answer 115) Which of the following is a normative statement?

1. Children in the United States are required to go to school until they reach a certain
2. The best way to encourage growth in the economy is through government
3. The federal minimum wage is higher today than it was in 1990
4. age

Reveal answer 116) Which of the following would be the initial effect if an individual made a $10,000 cash deposit in a bank?

1. The money supply would fall but by less than the $10,000 deposit
2. The money supply would fall by $10,000
3. The money supply would not be affected by the deposit
4. The money supply would rise by $10,000

Reveal answer 117) Inflation:

1. can result in a decrease in barter transactions
2. encourages people to hold cash
3. is caused by changes in interest rates
4. raises the cost of making purchases and sales for which cash is required

Reveal answer 118) If people demand more of product A when the price of B falls, then A and B are:

1. complements
2. inferior goods
3. not related
4. substitutes

Reveal answer 119) In the circular-flow model, households:

1. buy resources in the factor markets
2. issue stocks and bonds to raise capital
3. receive transfer payments from the government
4. sell products in the market for goods and services

Reveal answer 120) Long-run growth is the sustained upward trend in:

1. aggregate output per person over several decades
2. aggregate output per person over the business cycle
3. interest rates over time
4. nominal GDP over time

Reveal answer 121) If the government spends an extra $5 billion on goods and services:

1. GDP will go up by $5 billion
2. GDP will increase by less than $5 billion
3. GDP will increase by more than $5 billion
4. GDP will remain unchanged

Reveal answer 122) If the quantity supplied in a market exceeds the quantity demanded in a market, we would expect prices to:

1. fall
2. rise
3. rise in order to clear the market
4. stay the same

Reveal answer 123) An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following in the soft drink market?

1. Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same
2. Equilibrium quantity will increase, but equilibrium price may decrease, increase, or
3. There will be a decrease in both equilibrium price and quantity
4. stay the same

Reveal answer 124) Monetary policy involves:

1. changes in government spending
2. changes in government tax receipts
3. changes in tax rates
4. changes in the quantity of money

Reveal answer 125) If workers' nominal wages have risen by 50% over a ten-year period and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services that workers can buy has

1. It is impossible to determine whether the amount of goods and services that
2. fallen
3. increased
4. not changed

Reveal answer 126) Consumer spending will rise if:

1. government transfers fall
2. government transfers rise
3. the government raises tax rates
4. the government raises tax rates or government transfers fall

Reveal answer 127) Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following would most likely result?

1. Equilibrium real GDP will be more than anticipated
2. The economy could move into a recession
3. The economy will generate a larger inflationary gap than anticipated
4. This will not have any adverse effects on the economy, since inflation has been abated

Reveal answer 128) Which of the following financial assets belongs to M2 but not to M1?

1. a checkable deposit
2. a savings account
3. currency
4. travelers' checks

Reveal answer 129) If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is:

1. 10%
2. 12.5%
3. 25%
4. 5%

Reveal answer 130) Suppose your grandma sends you $100 for your birthday and you deposit that $100 in your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _____, and if the bank lends these new excess reserves, the money supply could eventually grow by as much as _____.

1. $100; $1,000
2. $100; $900
3. $90; $1,000
4. $90; $900

Reveal answer 131) Holding everything else constant, the government's budget balance during an expansion will

1. be equal to 100
2. decrease
3. increase
4. remain the same

Reveal answer 132) A negative relationship between the quantity demanded and price is called the law of ________.

1. demand
2. marginality C) efficiency D) supply

Reveal answer 133) The stability pact, signed by many of the European countries that adopted the euro, limited each member nation's deficit to 3% of GDP. This:

1. did away with budget deficits all together
2. enhanced the ability of each of the member countries to conduct fiscal policy
3. enhanced the ability of each of the member countries to conduct monetary policy
4. limited each member country's ability to use fiscal policy

Reveal answer 134) When the government decreases government spending, the:

1. AD curve will shift to the left
2. SRAS curve will shift to the left
3. government debt will increase
4. government's budget balance will move toward a deficit

Reveal answer 135) Money is:

1. an asset that can be easily used to purchase goods and services
2. any form of wealth
3. only currency in circulation
4. only currency which is designated by law

Reveal answer 136) Changing the level of government spending is an example of:

1. exchange rate policy
2. fiscal policy
3. interest rate policy
4. monetary policy

Reveal answer 137) Market equilibrium occurs when:

1. quantity demanded equals quantity supplied
2. the market clears
3. there is no incentive for prices to change in the market
4. there is no incentive for prices to change in the market, quantity demanded equals

Reveal answer 138) Suppose the reserve ratio is 20%. If Sam deposits $500 into his checking account, his bank can increase loans by:

1. $100
2. $2,500
3. $400
4. $500

Reveal answer 139) The national accounts keep track of everything except:

1. business investment
2. exchange rates
3. the sales of producers
4. the spending of consumers and the government

Reveal answer 140) Households derive income from all of the following except:

1. imports
2. interest from lending
3. rent from allowing firms to use their land
4. wages or labor income

Reveal answer 141) Included in the M1 definition of money are:

1. U.S. Treasury bills
2. checkable bank deposits
3. demand deposits, savings deposits, and U.S. Treasury bills
4. savings deposits

Reveal answer 142) The existence of deposit insurance:

1. can increase the possibility of bank runs
2. essentially serves the same function as a fractional reserve system
3. leads depositors to be less inclined to monitor bank operations
4. often makes banks more accountable for their actions and less likely to engage in risky behavior

Reveal answer 143) Scarcity in economics means:

1. The wants of people are limited
2. There must be poor people in rich countries
3. We do not have sufficient resources to produce all of the goods and services we
4. want

Reveal answer 144) A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:

1. a decrease in the demand for beef, leading to a shift to the left in the demand curve for beef and higher beef prices
2. a decrease in the supply of beef, leading to a shift to the left in the supply curve for beef and higher beef prices
3. an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices
4. an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and lower beef prices

Reveal answer 145) If chicken and beef are substitutes, then a fall in the price of chicken will bring about:

1. a decrease in the demand for beef
2. a decrease in the quantity demanded of beef
3. an increase in the demand for beef
4. no change in the demand for beef

Reveal answer 146) If a country has a trade deficit, does it indicate that the country has a serious problem?

1. No. Trade deficits occur when a country's investment spending is higher than its
2. Yes. Trade deficits occur when a country does not have a comparative advantage in
3. Yes. Trade deficits occur when a country has low worker productivity
4. level of saving

Reveal answer 147) Decreasing funding to explore space:

1. will shift the aggregate demand curve to the left
2. will shift the aggregate demand curve to the right
3. will shift the aggregate supply curve to the left
4. will shift the aggregate supply curve to the right

Reveal answer 148) Decisions about monetary policy are made by:

1. representatives of banks that are members of the Federal Reserve System
2. the Federal Open Market Committee
3. the President's Council of Economic Advisors
4. the president and Congress

Reveal answer 149) The primary difference between a change in supply and a change in the quantity supplied is that:

1. a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve
2. a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve
3. a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply
4. both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions

Reveal answer 150) Suppose the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

1. decrease government purchases
2. decrease government transfers
3. decrease taxes
4. increase real interest rates

Reveal answer 151) When people use money to purchase downloaded music, they are using money as:

1. a medium of exchange
2. a store of account
3. a store of value
4. a unit of account

Reveal answer 152) Opportunity cost is:

1. about half of the monetary cost of a product
2. the benefit derived from a product
3. the dollar payment for a product
4. the value of the best alternative forgone in making any choice

Reveal answer 153) Which of the following is considered to be money?

1. Google stock
2. bonds
3. checking account deposits
4. credit cards

Reveal answer 154) An ambiguous change in price and a decrease in quantity are most likely caused by:

1. a shift to the left in supply and a shift to the left in demand
2. a shift to the left in supply and a shift to the right in demand
3. a shift to the right in supply and a shift to the left in demand
4. no shift in supply and a shift to the left in demand

Reveal answer 155) The sequence of business cycle phases is:

1. business-cycle peak, business-cycle trough, expansion, recession
2. business-cycle peak, expansion, business-cycle trough, recession
3. business-cycle peak, expansion, recession, business-cycle trough
4. business-cycle peak, recession, business-cycle trough, expansion

Reveal answer 156) A negative relationship between the quantity demanded and price is called the law of:

1. demand
2. increasing returns
3. market clearing
4. supply

Reveal answer 157) Bank reserves are:

1. gold kept in the bank's vault
2. the deposits lent to finance illiquid investments
3. the fraction of deposits kept in gold with the Federal Reserve
4. the fraction of deposits kept in the form of very liquid assets

Reveal answer 158) Macroeconomics deals with:

1. bits and pieces of the economy
2. how individuals make decisions
3. the question of how a business unit should operate profitably
4. the working of the entire economy or large sectors of it

Reveal answer 159) “Tuition at State University this year is $8,000.” Which function of money does this statement best illustrate?

1. as a means of deferred payment
2. as a medium of exchange
3. as a store of value
4. as a unit of account

Reveal answer 160) The opportunity cost of something is:

1. equal to the money cost
2. greater during periods of rising prices
3. less during periods of falling prices
4. what is given up to acquire it

Reveal answer 161) An example of a positive statement is:

1. a high rate of economic growth is good for the country
2. everyone in the country should be covered by national health insurance
3. the federal government spends half of its budget on national defense
4. the rate of unemployment should be 4%

Reveal answer 162) If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is:

1. a decrease in government spending
2. a decrease in government transfers
3. an increase in government spending
4. an increase in the money supply to decrease interest rates

Reveal answer 163) When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n):

1. expander of economic activity
2. factor of production
3. medium of exchange
4. store of value

Reveal answer 164) The horizontal summation of individual demand curves for a particular product, holding the quantity demanded constant, is referred to as:

1. complements in production
2. market demand
3. market supply
4. substitutes in production

Reveal answer 165) Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

1. automatic stabilizers
2. balanced budget policy
3. deficit reduction policy
4. discretionary fiscal policy

Reveal answer 166) In the paradox of thrift:

1. increased saving by individuals increases their chances of becoming unemployed
2. more today
3. when families and business are feeling pessimistic about the future, they spend
4. workers

Reveal answer 167) Which of the following measures is typically used as an indicator of the conditions in the labor market?

1. the inflation rate
2. the population growth rate
3. the trade deficit
4. the unemployment rate

Reveal answer 168) Suppose an economy uses a checkable deposits only monetary system and it has a required reserve ratio of 20%. If the central bank in this economy conducts an open market purchase of $5 million Treasury bills, this will potentially:

1. decrease the money supply by $10 million
2. decrease the money supply by $25 million
3. increase the money supply by $10 million
4. increase the money supply by $25 million

Reveal answer 169) When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have:

1. a trade deficit
2. a trade surplus
3. hyperinflation
4. price stability

Reveal answer 170) An economy is said to have a comparative advantage if it:

1. can produce less of all goods than another economy
2. can produce more of all goods than another economy
3. has the highest cost for producing a particular good
4. has the lowest cost for producing a particular good

Reveal answer 171) Fiscal policy involves:

1. changes in interest rates in specific markets
2. changes which correct only recessionary problems
3. deliberate changes in taxation and/or government spending
4. deliberate changes in the money supply

Reveal answer 172) Which of the following always results in an increase in price and quantity?

1. a decrease in demand and supply
2. an increase in demand with no change in supply
3. an increase in supply and a decrease in demand
4. an increase in supply with no change in demand

Reveal answer 173) A major problem with bank runs is that they:

1. cause both inflation and interest rates to fall
2. cause inflation, because the money moves so fast in the economy
3. cause interest rates to fall
4. spread to other banks

Reveal answer

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