1. What is always true of an economy operating on its production possibilities frontier?
Resources are fully employed when an economy is operating on its production possibilities frontier.
2. Open market operations take place when the...
Open market operations take place when the central bank buys or sells government bonds.
3. A rightward shift in the short-run aggregate supply curve will occur when...
A rightward shift in the short-run aggregate supply curve will occur when the stock of physical capital increases.
4. An increase in what will most likely cause an increase in long-run economic growth?
An increase in investment in human capital is most likely to increase long-run economic growth
5. Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to what?
Disposable income is equal to $2,500 billion.
6. The money demand curve is downward sloping because...
The money demand curve is downward sloping because people hold less money as the opportunity cost of holding money rises.
7. According to the quantity theory of money, the quantity of money is related to...
The quantity of money is related positively to the nominal gross domestic product.
8. What would generate cost-push inflation?
An increase in the price of labor would generate cost-push inflation.
9. Assuming no change in the nominal wage and a significant increase in human capital, the output per worker will...
The output per worker will increase an the real wage will increase.
10. Scarcity exists because...
Scarcity exists because human wants exceed the productive capacity of the economy.
11. To counter a recession, the central bank might pursue what actions?
To counter a recession, the central bank might pursue decreasing the discount rate and buying securities on the open market.
12. An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?
An increase in the price of a key input will not cause a change in the aggregate demand curve and the short-run aggregate supply curve will shift to the left.
13. Suppose that the central bank buys $100 worth of bonds on the open market. Assume that the required reserve ratio is 10%, banks keep no excess reserves, and there are no cash leakages. After banks have made all adjustments, reserves, demand deposits,
Reserves will increase by $100, demand deposits will increase by $1,000, and loans will increase by $900.
14. A simultaneous increase in both the demand for and the supply of a good in a market will lead to what changes in the equilibrium price and quantity of the good?
An increase in both the demand for and the supply of a good in a market will lead to an increase in the equilibrium quantity of that good, but an indeterminate change in the equilibrium price.
15. Country A both imports and produces tea. If Country A imposes a tariff on imported tea, what will happen to the domestic tea industry?
If Country A imposes a tariff on imported tea, employment in the domestic tea industry will increase.
16. In the United States, what event would cause the shift from S1 to S2 in the money market shown above?
In the United States, the purchase of government bonds on the open market by the Federal Reserve would have caused the shift from S1 to S2 in the money market shown above.
17. The short run Phillips curve shows that...
The short run Phillips curve shows that there is a trade off between inflation and unemployment.
18. What is frictional unemployment? Give an example.
The time spent when a worker is transitioning between jobs or searching for one. A person quits a job to search for another job is an example of frictional unemployment.
19. REAL DISPOSABLE INCOME CONSUMPTION
$18,000. $19,000
$22,000 $22,000
$26,000 $25,000
According to the income and consumption schedules shown above, the marginal propensity to consume is
According to the income and consumption schedules shown, the marginal propensity to consume is 0.75.
20. In the long run, a decrease in the money supply will affect the price level and the level of output in what ways?
A decrease in the money supply will cause the price level to decrease but will not change level of output.
21. If fiscal policy is used to correct a recessionary gap, what would happen to output and employment?
If fiscal policy is used to correct a recessionary gap, in the absence of crowding out in the short-run, real output will increase and unemployment will decrease.
22. An economy full employment real output will decrease when...
When workers choose shorter weeks to enjoy more leisure time.
23. Given the aggregate demand and aggregate supply curves shown, if policy makers want to increase real output without causing inflation, they can pursue a policy that will...
If policy makers want to increase real output without inflation, they can pursue a policy that will increase aggregate supply only.
24. What effect can political and economic risk have on a country's real interest rate?
If Country Z is viewed as having increased political and economic risk, the real interest rate in Country Z is most likely to increase.
25. Assume that Canada imports more goods and services than it exports. What would be true of the Canadian balance of payments accounts?
The trade balance in their balance of payments accounts must be negative.
26. What is true of exchange rates that are freely floating?
The free market forces of demand and supply determine the equilibrium exchange rates.
27. What combinations of policies (be specific to taxes and government spending) is designed to decrease inflation?
A decrease in government spending and an open-market sell of government securities are designed to decrease inflation.
28. When Country X's central bank engages in monetary policy actions that lead to a decrease in interest rates, the international value of Country X's currency and Country X's exports and imports will most likely change how?
The international value of Country X's currency will decrease. Country X's exports will increase and Country X's imports will decrease.
29. A country's real gross domestic product is the annual value of all final goods and services that are...
Produced in that country, adjusted for changes in the price level.
30. If a change in the aggregate demand results in a recession, how will the price level and real output change in the short-run?
The price level and real output will both decrease.
31.In the aggregate demand- aggregate supply model, economic growth can best be represent by
a rightward shift of the long run aggregate supply curve.
32. What increase leads to an increase in output per worker
increase in the stock of physical capital per worker.
33.The United States national debt is (definition)
the amount of money owed to holders of united states government securities.
34.According to the short run Phillips curve, a contractionary fiscal policy will result in
a decrease in inflation and in unemployment.
35.A short run increase in national income could be caused by a decrease what?
in imports.
36.The loanable funds market is best describe as bringing together
savers and borrowers.
37. Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy marginal propensity to consume in 0.75 and there is no crowding out, the government should
increase spending by $150 billion.
38. Assume that Linda deposits in her checking account the $1,000 cash she was keeping at home for an emergency. If the required reserve is 0.20, what is the maximum change in the money supply from her deposit?
is $4,000.
39. The aggregate demand curve assumes that
changes in the price level affect real wealth.
40.Describe the present value of one dollar received one year from today
is worth less than a dollar received today
41. If an increase in government spending, financed by borrowing, crowded out an equal amount of private spending, what would result?
aggregate demand would remain unchanged.
42.An increase in what will cause an increase in the demand for money?
an increase in the price level.
43.Suppose that in a particular country, nominal gross domestic product (GDP)grew by 8 percent, and the GDP deflator increased by 10 percent. The country's growth rate of real GDP would be approximately equal to
-2%.
44.Assume that the marginal propensity to consume is 0.90. As a result of an increase in tax rates, the government collects an additional $20 million. The impact on gross domestic product will be
a decrease by a maximum of $180 million.
45.What exists as full employment?
When there is Frictional, but not cyclical, unemployment an economy is at full employment.
46.Wally can make 40 units of good X or 30 units or good Y in a day, and Sam can make 20 units of good X or 10 units of good Y in a day. Assuming constant trade offs between good X good Y, what is each persons comparative and absolute advantage?
Sam has a comparative advantage in making good X.
47. Automatic stabilizers do what?
can cause tax revenues to decrease when gross domestic product decreases and to increase when GDP increases.
48.According to the graph above, what assumptions can be made about the economy?
Wages will eventually decrease, restoring full-employment in the long run.
49. An increase in Canada's real interest rates relative to real interest rates in the rest of the world will lead what happening in Canada?
financial capital flow.
50. The real interest rate earned is the
Cost borrowing adjust for the rate of change in the price level