1

The government of Crossland wants to influence its exchange rate. It will do so by buying and selling:

Commodities

Goods and services from the current account

Currencies in its official reserves

Transfers

2

If banks hold excess reserves whereas before they did not, the money multiplier:

Might increase or might decrease

Will be unaffected

Will become larger

Will become smaller

3

Quotas and tariffs can:

Yield the same amount of tax revenue if they are set appropriately.

Both increase international trade by the same amount if set appropriately.

Have the same effect on the price of domestically produced goods if they are set appropriately.

Never have the same effect on imports and import prices.

4

The law of demand states that quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes:

Down, the quantity demanded goes down.

Up, the quantity demanded also goes up.

Down, the quantity demanded stays the same.

Up, the quantity demanded goes down.

5

Suppose farmers can use their land to grown either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause:

Farmers to raise the production of corn and wheat.

Farmers to lower the production of corn and wheat.

Farmers to substitute corn for the production of wheat.

Farmers to substitute wheat for the production of corn.

6

When interest rates rise, people are:

More likely to borrow, that is, sell a financial asset.

Less likely to borrow, that is, purchase a financial asset.

Less likely to borrow, that is, sell a financial asset.

More likely to borrow, that is, purchase a financial asset.

7

The largest expenditure component of GDP is:

Investment

Consumption

Government spending

Net exports

8

As a country develops economically, what changes usually take place in the goods it exports?

Services and manufactured goods decline in importance and are replaced by raw materials and agricultural products.

Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.

There is little change because comparative advantage does not change.

Exports go from being diversified to being specialized in whatever the country finds to its comparative advantage.

9

If income increases more rapidly than expected, then:

Tax revenues will be lower than expected.

The budget is less likely to be in surplus.

Spending on income-support programs will likely be lower than expected.

Estimates of the target rate of employment are likely to increase.

10

News Story: Workers at a car-manufacturing plant in Flint, Michigan are laid off because the economy is weak and GM cars aren’t selling well. GM isn’t sure when the plant will reopen. What type of unemployment describes the workers’ situation?

Cyclical unemployment

Structural unemployment

Frictional unemployment

Full unemployment

11

If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of:

$500

$50

$100

$20

12

The interest rate is the price paid for use of a:

Financial asset.

Real liability.

Financial liability.

Real asset.

13

U.S. imports involve an

Outflow of foreign currency from the United States to foreigners

Outflow of dollars from the United States to foreigners

Inflow of foreign currency from foreigners to the U.S. economy

Inflow of dollars from foreigners to the United States economy

14

Which of the following is the path through which contractionary monetary policy works?

Money down implies interest rate down implies investment up implies income down.

Money down implies interest rate up implies investment up implies income down.

Money down implies interest rate up implies investment down implies income down.

Money down implies interest rate down implies investment down implies income down.

15

According to Keynes, why might deflation create problems for an economy?

In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail.

The cost of repricing goods would increase costs, and therefore reduce profits, for businesses and they would cut production.

People would drop out of unions because unions would become ineffective at keeping wages of members high.

Consumers might expect prices to fall further and cut back consumption now.

16

The depreciation of currency will:

Balance a trade surplus.

Have no impact on a country’s comparative advantage.

Improve a country’s comparative advantage.

Worsen a country’s comparative advantage.

17

Which of the following topics is best characterized as a macroeconomic issue?

The effect of an increase in federal spending on the unemployment rate

The choice a student makes in selecting college course

The decision by Apple to produce fewer Macintosh computers

The effect of a drought on the price of corn

18

According to Keynes, market economies:

May recover slowly after they experience a significant decline in aggregate demand.

Are constantly experiencing significant declines in aggregate demand.

Never experience significant declines in aggregate demand.

Quickly recover after they experience a significant decline in aggregate demand.

19

Central banks are responsible for:

Fiscal policy but not monetary policy

Both monetary policy and fiscal policy

Monetary policy but not fiscal policy

Neither monetary policy nor fiscal policy

20

Macroeconomics is:

The study of aggregate economic relationships.

The study of individual choice and how that choice is influenced by economic forces.

The study of pricing policies of firms and the purchasing decisions of households.

An analysis of economic reality that proceeds from the parts to the whole.

21

Using the expenditure approach, gross domestic product equals:

The sum of consumption, investment, government purchases, and net exports

The sum of consumption, investment, and government purchases

Gross national product

Gross national product minus net exports

22

What would make foreigners want to buy more from the United States?

Inflation in the United States

Higher interest rates in the United States

A fall in the value of the dollar in the foreign exchange market

Higher tariffs

23

Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

An increase in taxes

An increase in government spending

No change in taxes or government spending

A reduction in government spending

24

Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:

An increase in the bargaining power of labor unions.

A decline in aggregate supply.

A decline in the level of aggregate demand.

An increase in the minimum wage.

25

If a country wants to prevent its exchange rates from falling, it could:

Remove any subsidies on exports

Pursue easier monetary policy

Place restrictions on imports

Remove restrictions on imports

26

Globalization that allows governments to pursue expansionary policies can be dangerous because it can lead to:

A reduction in the debt ceiling

Asset price inflation

Goods price deflation

Goods price inflation

27

How do investment in technology and investment in capital differ?

They have similar effects on output so they have no important differences from an economic point of view.

They have different effects on output because of the positive externalities associate with investments in technology.

They have different effects on output because of the positive externalities associated with investments in capital.

They have the same effects on output but investments in technology are much more closely tied to the level of saving than investments in capital.

28

Which of the following types of unemployment is considered to be the most controllable through demand-side macroeconomic policy?

Cyclical unemployment

Structural unemployment

Frictional unemployment

Natural unemployment

29

In which of the following situations is a budget surplus most likely to occur?

When fiscal policy is contractionary and the economy is expanding

When fiscal policy is expansionary and the economy is contracting

When the economy is contracting

When fiscal policy is expansionary

30

According to the Classical growth model, an economy that increases its saving will grow:

Quickly since the increase in saving will permit greater investment.

Slowly because interest rates will fall, causing investment to decline.

Slowly because consumption and aggregate demand will be reduced.

Quickly since the increase in saving will permit more rapid technological progress.