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28) Demand-pull inflation is often summed up as: a) excessive demand caused by too much dollars chasing too few goods b) the wage price spiral c) profit-push inflation d) supply-side cost shock inflation 29) During unanticipated inflation a) savers lose b) borrowers gain c) lenders lose d) All of the above 30) A wage.price spiral is the result of: a) lower wages and higher prices b) higher wages and lower prices c) higher wages and higher prices d) lower wages and lower prices 31) One measure of the inflation rate is the a) GDP minus the real GDP in a year b) Percentage change in the real GDP of adjacent years c) Percentage change in the CPI of adjacent years. d) Sum of the CPls of adjacent years 32) Phillips' curve explains the trade-off between: a) wage and price inflation b) the unemployment rate and the rate of change in wages c) the unemployment rate and the rate of inflation d) output and prices changes 33) Inflation means that a) all prices are rising, but at different rates b) all prices are rising and at the same rate. c) prices in the aggregate are rising, although some particular prices may be falling d) real incomes are rising 34) Say's law a was a basic pillar of classical economics b. was a basic pillar of keynesian economics c. was formulated during the Great Depression d. proves that we can never have full employment 35) Which question did John Maynard Keynes pose for the classical conomists? What if their policies led to inflation! b. What if savings and investment were not equal? 6. What if government intervention did not cure a recession d. None of the above is correct 36) Our cconomy is always tending towards full employment according to 2. John Maynard Keynes. h the classical economists. both Keynes and the classicals. d. neither Keynes nor the classical 37) At equilibrium GDP a savings - investment, but aggregate demand does not equal aggregate supply b. savings = investment and aggregate demand aggregate supply savings does not equal investment and aggregate demand does not equal aggregate supply. d. savings does not equal investment, but aggregate demand aggregate supply 38) Laissez-fair economics was advocated by both Keynes and the classical b. neither Keynes nor the classicals the classicals, but not by Keynes d. Keynes, but not by the classicals
18) a) b) c) d) A plumber who quits his job in San Diego and moves to Oakland where additional plumbers are needed is said to be unemployed Underemployed Cyclically Structurally Frictionally True or false: The cyclical unemployment rate can never be negative True False True or falle: The sum of the employment rate and the employment rate always equals 100% True False 19) b) 20) c) d) 21) The hase year is the year a) That serves as a reference point or benchmark b) In which prices are highest c) In which prices are lowest d) In which prices are unstable 22) In order to be classified as unemployed, a person must a) Not have a job b) Actively have looked for work within the past six weeks c) Not have a job, and currently be available for work d) Not have a job, have been actively looking for work within the past four weeks, and currently be available for work 23) True or False: When news reports state that the cost of living has changed they are usually referring to a change in the CPI a) Trac b) False 24) An example of disinflation would be when the annual inflation rate went from a) 4% to 0% b) 8% to 4% c) 4% to 8% d) 26 to 2% 25) Inflation is: a) a rise in the price of every good and service b) a rise of exactly a specified percentage in the price of every good or service c) a general rise in the price level d) a general rise in prices of at least 10% a year 26) Deflation is a) Hyperinflation b) a constant rate of inflation c) a slow-down in the rate of inflation d) zero inflation e) a decline in the price level 27) Disinflation is: a) the same as detlation b) a constant price level c) negative inflation d) a drop in the general level of prices e) a reduction in the annual rate of inflation
10) b) c) d) a) b) c) d) Is it possible for the coonomy to be at full employment and still have some people who are unemployed? Yes, since full employment equals the sum of the cyclical unemployment rate and the natural unemployment rate. and there is always some cyclical unemployment Yes, since full employment exists if the economy is operating at the frictional unemployment rate and there is always some frictional unemployment Yex, since full employment exists if the cconomy is operating at the natural unemployment rate and there is always some natural unemployment No, full employment means that no one is unemployed If a person did at least one hour of work as a paid employee during the past month, bow is she classified? As an unemployed person As not in the labor force As an employed person None of the above Suppose the civilian population equals 150.000, there are 72.500 employed persons and 10,000 unemployed persons. How many people are not in the labor force? 67.500 63.500 77.500 10.000 None of the above "Fall employment is said to exist when the unemployment rate cquals: The natural unemployment rate The structural unemployment rate The cyclical unemployment rate Zero 12) a) b) c) d) a) b) d) 14) b) c) d) In many large retail stores, price markdowns are now determined by computer. The middle manager who used to make these decisions personally became _unemployed. Cyclically Naturally Structurally Frictionally Suppose there are 50 million people in the population. 25 million people in the civilian labor force, and 20 million people are employed. The number of people unemployed is _million and the employment rate is __percent 10:10 5:20 5:10 25:50 15) b) c) d) 16) b) c) d) If we subtract the number of people not in the labor force from the civilian population, we get the number of people in the Ranks of discouraged workers Ranks of the employed Civilian labor force Ranks of the unemployed a person is waiting to be called back to a job from which she has been taid off, bow is she classified As an employed person As an unemployed person As not in the labor force None of the above 17) a) b) c) d
59) if full employment GDP $500 billion greater than equilibrium GDP and the multiplier as 5. there is a deflationary gap a of 50 billion b. S100 billion. c. of S200 billion d. of SSoo billion. c. that is impossible to find 60) Which statement is true about inflationary saps and deflationary saps? They can both be eliminated by raising G. b. They can both be climinated by lowering G. They can both be eliminated by raising taxes d. They can both be eliminated by lowering taxes e. None is true. 61) During times of inflation we want to a raise taxes and run budget deficits. b. raise taxes and run budget surpluses c. lower taxes and run budget surpluses d. lower taxes and run budget deficits. 62) There are two ways to lower the deficit: a raise taxes and raise government spending b. lower taxes and lower government spending raise taxes and lower povernment spending d. lower taxes and raise government spending 63) Which of the following is an example of an automatic stabilizer? The reduction in the money supply that occurs as banks become less willing to make loans during a recession b. The reduction in real wages that occurs as the coonomy goes into a recession, The increase in government spending that occurs as the result of new spending bills passed by Congress d. The rise in tax revenue that occurs as a result of growth in real GDP. c. All of the above. 61) How large will the total change in income be from a change in investment of SiS if the marginal propensity to consume (MPC) is.8? a $12 b. 520 $25 d. S75 e $200 65) Which of the following is an example of crowding out? a Federal government spending causes changes in state and local government spending b. Government spending reduces private spending • Tax changes perceived as temporary are largely ignored d. Government spending causes the price level to rise 66) When government expenditures in a given year are less than revenues, there exists a budge deficit . public revenue full-employment taxation da budget surplus 67) If the MPC wete75, what change in government spending would be required to cause the equilibriun level of GDP to fall by 100 a, a decrease of 25 b. a decrease of 50 ca decrease of 75 d. a decrease of 100 e a decrease of 125. 68) Contractionary fiscal policy involves an increase in government spending and/or a decrease in taxes b. an increase in transfer payments decrease in povernment spending and or an increase in taxes. d. all of the above
49) As potential real GDP is approached, the aggregate supply curve a becomes flatter bis downward sloping c. becomes steeper d. remains unchanged. 50) The wealth or real balances effect indicates that a an increase in the price level will increase the demand for money. Increase interest rates, and reduce consumption and investment spending blower price level will decrease the real value of many financial assets and therefore cause a decline in spending c. a higher price level will increase the real value of many financial assets and therefore cause a decline i spending d. a higher price level will decrease the real value of many financial assets and therefore cause a decline in spending 51) The curve showing various quantities of total real output that will be offered for sale at various alternative price levels is called the aggregate demand curve b. real gross domestic investment curve. e aggregate supply curve. d. yield curve e aggregate individual demand curve. 52) The Keynesian point of view suggests that 1. supply creates its own demand, b. demand creates its own supply c. the market is always at equilibrium d. full employment is the natural result of market forces wage and price controls can halt deflationary pressures 53) Which of the following is not an aspect of Keynesian economics? Wages and prices tend to be inflexible downward. b. Supply does not necessarily generate its own demand. Saving depends directly upon the level of income d. Unemployment is a temporary phenomenon. 54) Keynesians tend to believe that a laissez-faire policies stabilize market economies b. monetary restraint aggravates inflationary pressures c. massive government spending and tax cuts are cures for recession d. expansionary monetary policy revives an economy from recession the velocity of money rises if the money supply prows during recessions 55) Fiscal policy deals with each of the following except a the money supply b. government spending c. taxation d. the federal budget 56) There is a deflationary gap when acquilibrium GDP is equal to full employment GDP b. equilibrium GDP is smaller than full employment GDP equilibrium GDO is larger than full employment GDP d. none of these occur 57) To close a deflationary gap we should a. raise G and raise taxes. b. lower G and lower takes c. raise and lower taxes. d. lower G and raise taxes. 58) Budget deficits are appropriate during a recessions, but not inflations b. inflations, but not recessions recessions and inflations d. neither recessions or inflations
39) According to the classical economists, if the amount of money people are planning to event is greater than the amount that people want to save a interest rates will rise and savings will rise b. interest rates will fall and savings will fall. interest rates will fall and savings will rise d. interest rates will rise and savings will fall 40) When the price level in the United States, relative to the price levels in other countries, rises, this tends to a raise imports and exports b. Lower imports and exports 4. Raise imports and lower exports d. Lower imports and raise exports. 4) At equilibrium, segregate demand wil equal each of the following except a C+1 6. C. Full employment GDP d. Aggregate supply 42) Which best describes the classical theory of employment? a. We will always have a great deal of unemployment . We will usually have a great deal of unemployment We will occasionally have some unemployment, but our economy will automatically move back toward full employment d. We never have any unemployment. 43) When savings is greater than investment we are: a. at equilibrium GDP. b. at full employment GDP below qualibeam GDP. d. above equilibrium GDP ++) According to the classicals cet economy can produce beyond the full employment output a only in the short run. b. only in the long run. c. in both the short run and the long run din neither the short run or the long run 45) Under what condition will an increase in aggregate demand result in no increase in the price level? a. The aggregated demand curve is upward sloping b. The appregate demand curve intersects the upward-sloping segment of the agregate supply curve c. The aggregate demand curve intonsects the horizontal segment of the aggregate supply curve. 4. The agregate demand curve intersects the downward sloping segment of the aggregate supply curve c. The aggregate demand curve intersects the vertical segment of the aggregate supply curve. 46) The price level rises mete rapidly as potential real GDP is approached along an aggregate supply curve because a. protit-taking firms are exploiting their market size and power b. of the profit incentive the costs of additional units of aggregate output begin to rise more rapidly. causing firms to seek higher prices to cover these rising costs d. none of the above 47) If aggregate demand increases and as a result, the price level increases but equilibrium real GDP and employment remain unchanged, we can assume that the aggregate demand curve a intersects the upward-sloping segment of the aggregate supply curve b. intersects the vertical segment of the aggregate supply curve intersects the horizontal segment of the aggregate supply curve. d.is horizontal 48) Keynesian theory a established the validity of Say's Law bassumes that supply creates its own demand is primarily demand-oriented d. assigns much importance to Aggregate Supply and the general price level.
89) The most powerful (but scidom used tool at the Federal Reserve's disposal is a the ability to set reserve requirements b. the discount rate c.open-market operations d. margin requirements on stock purchases. 90) Bank panics were the result of a. banks holding 100 percent of their deposits on reserve b. depositors attempting to withdraw more deposits than the banks held in reserve c. banks hoarding greenbacks during the Civil War. d. the United States going off the gold standard in 1933 e money circulating too slowly 91) The discount rate refers to: the penalty paid by tisky bank borrowers that is, the amount of interest they pay in excess of the prime rate b. the rate at which bank write off and loans c. the rate at which assets lose their real value as a result of inflation d. the rate at which money loses its value as a result of inflation c. the rate of interest that the Fed charges on loans to commercial banks 92) Which of the following will increase commercial bank reserves? a. The purchase of government bonds in the open market by the Federal Reserve Banks b. A decrease in the reserve ratio C. An increase in the discount rate. The sale of government bonds in the open market by the Federal Reserve Banks 93) The most powerful individual in the Federal Reserve System is the a. senior member of the Federal Open Market Committee. b. Superintendent of the Board of Governors c. Chairman of the Federal Reserve Board d. New York District Bank President. 94) The rate of interest charged by the Fed and paid by banks when they borrow reserves from the Fed is called the a federal funds rate. b. prime rate c. real interest rate. d reserve rate e discount rate 95) The amount of reserves remaining after reserve requirements have been satisfied is called a. the required reserve ratio b. legal reserves c. federal reserves d. excess reserves 96) When a person cashes a check drawn on her own account, the money supply a. increases b. decreases c. remains the same d. increases because of interest rates. 97) An expansionary monetary policy tends to the United States dollar relative to Soteign currencies and to our balance of trade a. raise, help b. raise, hurt c. lower, help d. lower, hurt 98) An increase in the money supply will tend to a lower interest rates and lower the equilibrium GDP b. lower interest rates and increase the equilibrium GDP c. increase interest rates and increase the cquilibrium GDP. d. increase interest rates and lower the equilibrium GDP do none of the above. c.
79) if we run a budget deficit of S60 billion and a full-employment bulanced budget, then the unemployment rate would be b.6 c. 79 d. 8% e impossible to determine $0) If most hankers could do what they wanted, they would probably held mervex of about a 0% b. 3-4% c. 7-8% d. 10-12% c. 22-25% 81) The most important policy weapon of the Federal Reserve System (The Fed; in a changing the discount rate b. changing the reserve requirements. c. open market operations d. moral suasion 82) Open market operations are they buying and selling of United States govemment securities or bonds by the Fed. b. borrowing by banks from the Fed. the selling of United states government securities by the United States Treasury draising or lowering reserve requirements by the Fed. 83) When the Fed wants to increase the money supply it a raises the discount rate b. raises reserve requirements Csells securities. d. buys securities 84) In order to buy securities or govemment bonds the Fed offers a. a low price and drives up interest rates b. a low price and drives down interest rates. c. a high price and drives up interest rates. d. a high price and drives down interest rates 85) The Board of Governors of the Federal Reserve does cach of the following except sit on the Federal Open Market Committee b. serve on the Board at the pleasure of the President, who can make individual governors tesign at any time. c. carry out monetary policy d. raise and lower reserve requirements 86) The Federal Open Market Committee has members a 7 b. 10 12 d. 14 e. 17 87) During a bad recession the Fed would probably be doing each of the following except a. selling securities or bonds on the open market b. lowering interest rates c. lowering reserve requirements d. lowering the discount rate 88) The purpose of establishing the Federal Reserve System (The Fed was a to regulate commercial banking. b. to provide for a more clastic currency c. to increase the confidence in the nation's banks d. all of the above c. none of the above
69) If the economy dips into a recession automatic stabilizers will cause tax receipts to fall and transfer payments to rise automatic stabilizers will cause tax receipts to rise and transfer payments to fall cdiscretionary fiscal policy will generate increased transfer payments and lower tan receipts d. discretionary fiscal policy will reduce government outlays and increase tax receipts nothing will happen to the federal budget unless the president and Congress take specific corrective action 70) The practical significance of the multiplier is that it helps to stabilize the economy b. it keeps inflation within tolerable limits it magnifies relatively small changes in spending into larger changes in GDP d. it brings about a reduction in MPC. TI) During an inflation Republicans would be most in favor of 2 spending cuts. b. spending increases c. tax cuts, d. tax increases 72) If the multiplier is 5, the MPC is c3 d. 8 10 73) The multiplier effect occurs because when retained national income rises, the MPC increases, prompting further increases in income the new income generated by an increase in aggregate demand will be spent, each time becoming new inceme again c. the level of national income must be multiplied by the average propensity to consume to find total consumption spending d what business firms view as spending is viewed by households as income, so that new investment automatically becomes new income 74) As the MP rises the multiplier a will rise b. will fall c. will stay the same d. may rise, fall, or stay the same 75) Nondiscretionary fiscal policy also known as automatic stabilizers 1. entails legislative changes in government spending or taxes to stabilize the economy include changes in tax rates designed to reduce unemployment is the culprit whenever the federal government runs a budget deficit. d. involves changes in spending and taxes that occur automatically as economic conditions change 76) The "crowding-out effect" suggests that a government spending is increasing at the expense of private investment b. imports are replacing domestic production private investment is increasing at the expense of government spending d. consumption is increasing at the expense of investment 77) When the unemployment rate is 7 percent and we are running a budget deficit of 570 billion, the fall employment budget is: a balanced b. running a surplus 4 running a deficit 78) A crowding-in effect of increased government spending on investment occurs a when an increase in government spending leads to an increased in savings b. when increased government borrowing reduces the quantity of funds that businesses can borrow cand increases investment each time government spending increases d. when the increase in GDP caused by the increased government spending makes businesses see more investment projects as profitable