job offers with annual salaries of $30,000,

MICROECONOMICS $40,000, and $45,000. What is Jacqui's

economic profit from running her own
1. Which of the following statements is business?
correct? a. $-55,000
a. Opportunity costs equal explicit minus implicit b. $-5,000
costs. c. $5,000
b. Economists consider opportunity costs to be d. $20,000
included in a firm’s total revenues.
c. Economists consider opportunity costs to be 6. Which of the following is NOT a condition for
included in a firm’s costs of production. long-run equilibrium in a purely competitive
d. All of the above are correct. market?
(a) P = MC
2. John has decided to start his own lawn- (b) MR = MC
mowing business. To purchase the mowers (c) P = LRAC
and the trailer to transport the mowers, John (d) TFC = TC
withdrew $1,000 from his savings account,
which was earning 3% interest, and 7. Economic profits in long-run pure
borrowed an additional $2,000 from the bank competition are zero because pure
at an interest rate of 7%. What is John's competitors:
annual opportunity cost of the financial (a) don’t care about profits.
capital that has been invested in the (b) try to cover only their opportunity costs.
business? (c) enter an economically profitable industry, or
a. $30 exit if losses occur.
b. $140 (d) concentrate on social welfare.
c. $170 8. Economic profits in a competitive industry
d. $300 are signals that:
3. Pete owns a shoe-shine business. His (a) attract new firms into the industry.
accountant most likely includes which of the (b) hinder innovation of new technologies.
following costs on his financial statements? (c) encourage inefficiency in existing firms.
(i) shoe polish (d) prices should rise in the near future.
(ii) rent on the shoe stand 9. A purely competitive firm’s short-run supply
(iii) wages Pete could earn delivering newspapers curve is:
(iv) interest that Pete’s money was earning before (a) its MC curve above the minimum of the AVC
he spent his savings to set up the shoe-shine curve.
business (b) the upward sloping part of its ATC curve.
a. (i) only (c) the intersection where MR = MC.
b. (i) and (ii) only (d) horizontal up to the firm’s productive capacity.
c. (iii) and (iv) only
d. (i), (ii), (iii), and (iv) 10. A profit maximizing competitive firm will
shut down in the short run if:
4. Which of the following is an example of an (a) prices do not cover average total costs.
implicit cost? (b) it loses money on each unit of output.
(i) the owner of a firm forgoing an opportunity to (c) price falls below the minimum of its AVC curve.
earn a large salary working for a Wall Street (d) fixed costs exceed marginal revenues.
brokerage firm
(ii) interest paid on the firm's debt 11. Suppose a monopolist face a stable
(iii) rent paid by the firm to lease office space negatively-sloped demand curve.
a. (ii) and (iii) only Generating more quantity sales requires the
b. (i) and (iii) only monopolist to:
c. (i) only (a) advertise its product.
d. (iii) only (b) decrease the price of the product.
(c) lower its marginal revenue.
5. Jacqui decides to open her own business (d) increase its marginal revenue.
and earns $50,000 in accounting profit the
first year. When deciding to open her own 12. Barriers to entry:
business, she turned down three separate
(a) make it difficult or impossible for new firms to (d) combinations of resources.
profitably enter an industry.
19. The law of diminishing marginal returns is
(b) uniformly violate U.S. antitrust statutes.
encountered in the short run when more
(c) are basically technological instead of
labor is hired because as production rises:
economic.
(a) the remaining labor available for hire is less and
(d) stimulate aggressive competition.
less skilled.
13. Legal barriers to entry do NOT include: (b) customers are willing to pay only lower prices
(a) copyrights for music, computer software, and for extra goods.
written work.. (c) each extra worker hired decreases the land and
(b) protection of inventions by patent. capital per worker, so the workplace becomes
(c) licensing and bonding restrictions. more congested and managerial control
(d) substantial economies of scale. erodes.
(d) attempts to save money cause firms to hire
14. When a monopolist’s marginal revenue is
unqualified workers.
zero:
(a) total revenue is zero. 20. The sum of all fixed costs and all variable
(b) demand is perfectly inelastic. costs is equal to a firm’s:
(c) the price of the product exceeds average cost. (a) total accounting costs.
(d) economic profit is zero. (b) explicit costs plus implicit costs.
(e) total revenue is maximized. (c) sunk costs plus overhead costs.
(d) marginal costs plus opportunity costs.
15. A monopoly facing a demand curve that has
segments higher than its average variable
cost curve sets price:
(a) equal to MR.
(b) equal to marginal costs [MC].
(c) from the market demand curve after
determining the quantity where marginal
revenue equals marginal costs [MR = MC].
(d) as determined by demand if marginal costs
exceeds average total costs [MC > ATC].
16. Standard economic theories of production
and cost depend on:
(a) analyzing irrational utility-maximizing
households.
(b) assumptions that firms are rational profit
maximizers. 21. The distance between curves B and C gets
(c) economic behavior that can’t be quantified or smaller as more pizzas are produced as a
qualified. result of:
(d) strictly technological variables, not behavioral (a) increasing marginal returns.
assumptions. (b) diminishing marginal returns.
17. In the traditional theory of production and (c) diminishing average returns.
costs for the firm, the variable usually (d) spreading overhead.
considered constant in the long run would (e) falling marginal profit.
be: 22. If labor were the only variable resource in
(a) resources. the short run, the marginal physical product
(b) technology. of labor [MPPL that corresponds to this
(c) fixed cost. figure for a pizza parlor would be at its
(d) labor. maximum at an output level of:
18. A production function specifies the (a) D.
maximum outputs that can be produced (b) E.
from each of all alternative possible: (c) F.
(a) levels of consumer demands. (d) Indeterminable from this diagram.
(b) changes in technology.
(c) strategies to minimize costs.
23. When substantial economies of scale are 27. This profit-maximizing pure competitor’s
experienced in producing a good, average fixed cost (TFC) can be computed as area:
total costs: (a) 0Phq2.
(a) are excessive and cause losses for firms that (b) 0bgq2.
are larger than average. (c) Pbgh.
(b) rise substantially as the geographic market is (d) daef.
broadened.
28. A purely competitive firm will produce
(c) rise initially but then fall over the remaining
where:
possible range of output.
(a) MC is rising.
(d) converge on the median value of average fixed
(b) MC = P.
cost.
(c) MC = MR.
(e) fall over a large range of output.
(d) All of the above.
29. As a firm starts up and gets larger, it
typically experiences:
(a) constant returns to scale at all levels of output
and firm sizes.
(b) constant returns to scale, followed by
economies of scale, and then diseconomies of
scale.
(c) diseconomies of scale, followed by constant
returns to scale, and then economies of scale.
(d) economies of scale, followed by constant
returns to scale, and then diseconomies of
scale.
30. In a purely competitive industry, the
24. If this firm produces q2 output, then its: individual firm:
(a) MR > MC. (a) can increase the quantity demanded by
(b) MR < MC. lowering the price of its product.
(c) MR = MC. (b) experiences substantial economies of scale.
(d) P > MC. (c) faces a completely inelastic demand curve.
25. This profit-maximizing pure competitor’s (d) cannot affect the market price.
total cost (TC) equals area: (e) None of the above.
(a) 0Phq2. 31. The demand curve facing a purely
(b) 0bgq2. competitive firm is:
(c) 0aeq1. (a) horizontal.
(d) daef. (b) vertical.
26. For this profit-maximizing pure competitor, (c) downward sloping.
area Pbgh represents: (d) the horizontal summation of individual demand
(a) fixed cost (TFC). curves.
(b) average fixed cost (AFC). 32. Marginal revenue equals the change in total:
(c) losses, but the minimum possible economic (a) profit as output expands slightly.
losses. (b) output from hiring an additional worker.
(d) maximum positive economic profits. (c) revenue from selling an extra unit of output.
(e) rate of return on investment. (d) tax rates when tax revenue increases a bit.
MACROECONOMICS
1. During a presidential campaign, the incumbent 6. In the economy of Ukzten in 2010, exports were
argues that he should be reelected because $500, GDP was $6400, government purchases
nominal GDP grew by 12 percent during his 4- were $1500, imports were $600, and investment
year term in office. You know that population was $2000. What was Ukzten’s consumption in
grew by 4 percent over the period and that the 2010?
GDP deflator increased by 6 percent during the
a. $1800
past 4 years. You should conclude that real
b. $2800
GDP per person
c. $3000
a. grew by more than 12 percent. d. $4000
b. was unchanged.
7. Suppose a basket of goods and services has
c. grew, but by less than 12 percent.
been selected to calculate the CPI and 2002 has
d. decreased.
been selected as the base year. In 2002, the
2. Suppose the government eliminates all basket’s cost was $50; in 2004, the basket’s cost
environmental regulations and, as a result, the was $52; and in 2006, the bas-ket’s cost was
production of goods and services increases, but $54.60. The value of the CPI in 2004 was
there is considerably more pollution. Based on
a. 96.2.
this scenario, which of the following statements
b. 102.0.
is correct?
c. 104.0.
a. GDP would definitely increase, despite the fact that d. 152.0.
GDP includes environmental quality.
8. When the relative price of a good increases,
b. GDP would definitely increase because GDP
consumers respond by buying
excludes environmental quality.
c. GDP would definitely decrease because GDP a. a larger quantity of that good and a larger quantity
includes environmental quality. of substitutes for that good.
d. GDP could either increase or decrease because b. a larger quantity of that good and a smaller quantity
GDP excludes environmental quality. of substitutes for that good.
c. a smaller quantity of that good and a larger quantity
3. In the economy of Ukzten in 2010, consumption
of substitutes for that good.
was $4000, exports were $800, GDP was $9500,
d. a smaller quantity of that good and a smaller
imports were $200, and investment was $1000.
quantity of substitutes for that good.
What were Ukzten’s government purchases in
2010? 9. The substitution bias in the consumer price
index refers to the
a. $3900
b. $4100 a. substitution by consumers toward new goods and
c. $5100 away from old goods.
d. $5500 b. substitution by consumers toward goods that have
become relatively less expensive and away from
4. In the economy of Ukzten in 2010, consumption
goods that have become relatively more expensive.
was $5300, GDP was $8800, government
c. substitution by consumers toward a smaller number
purchases were $1800, imports were $500, and
of high-quality goods and away from a larger
investment was $2000. What were Ukzten’s
number of low-quality goods.
exports in 2010?
d. substitution of new prices for old prices in the CPI
a. -$800 basket of goods and services from one year to the
b. -$300 next.
c. $300
10. One of the widely acknowledged problems with
d. $200
using the consumer price index as a measure of
5. In the economy of Ukzten in 2010, consumption the cost of living is that the CPI
was $5000, exports were $100, government
a. fails to account for consumer spending on housing.
purchases were $900, imports were $200, and
b. accounts only for consumer spending on food,
investment was $1000. What was Ukzten’s GDP
clothing, and energy.
in 2010?
c. fails to account for the fact that consumers spend
a. $6700 larger percentages of their incomes on some goods
b. $6800 and smaller percentages of their incomes on other
c. $7000 goods.
d. $7200 d. fails to account for the introduction of new goods.
11. the CPI was 96 in 1982, and the CPI was 208 in
2010. How much money would you have needed
 in 2010 in order to buy what you could have a. the price level on the vertical axis. The price level
bought with $500 in 1982? can be measured by the GDP deflator.
a. $492.35 b. the price level on the horizontal axis. The price level
b. $1,083.33 can be measured by the GDP deflator.
c. $1,124.24 c. the price level on the horizontal axis. The price level
d. $1,351.92 can be measured by real GDP.
d. the price level on the vertical axis. The price level
12. In 1969, Malcolm bought a Pontiac Firebird for
can be measured by GDP.
$2,500. If the price index was 36.7 in 1969 and
the price index was 180 in 2009, then what is the 18. The aggregate-demand curve shows the
price of the Firebird in 2009 dollars? a. quantity of labor and other inputs that firms want to
a. $509.72 buy at each price level.
b. $6,866.49 b. quantity of domestically produced goods and
c. $9,761.58 services that households, firms, the government,
d. $12,261.58 and customers abroad want to buy at each price
level.
13. Which of the following is correct?
c. quantity of labor and other inputs that firms want to
a. Short run fluctuations in economic activity happen buy at each inflation rate.
only in developing countries. d. quantity of domestically produced goods and
b. During economic contractions most firms services that households want to buy at each price
experience rising sales. level.
c. When real GDP falls, the rate of unemployment
19. The curve that shows the quantity of goods and
rises.
services that firms produce and sell
d. Recessions come at regular intervals and are easy
to predict. a. as it relates to the quantity of goods and services
that buyers want to buy is called the aggregate-
14. Recession come at
demand curve.
a. regular intervals. During recessions consumption b. as it relates to the quantity of goods and services
spending falls relatively more than investment that buyers want to buy is called the aggregate-
spending. supply curve.
b. regular intervals. During recessions investment c. as it relates to the overall price level is called the
spending falls relatively more than consumption aggregate-supply curve.
spending. d. as it relates to the overall price level is called the
c. irregular intervals. During recessions investment aggregate-demand curve.
spending falls relatively more than consumption
20. Other things the same, an increase in the price
spending.
level induces people to hold
d. irregular intervals. During recessions consumption
spending falls relatively more than investment a. more money, so they lend less, and the interest rate
spending. rises.
b. less money, so they lend less, and the interest rate
15. According to classical macroeconomic theory,
rises.
changes in the money supply affect
c. less money, so they lend more, and the interest rate
a. variables measured in terms of money but not falls.
variables measured in terms of quantities or relative d. more money, so they lend more, and the interest
prices rate falls.
b. variables measured in terms of money and variables
21. Suppose a stock market boom makes people
measured in terms of quantities or relative prices
feel wealthier. The increase in wealth would
c. variables measured in terms of quantities or relative
cause people to desire
prices, but not variables measured in terms of
money a. increased consumption, which shifts the aggregate-
d. neither variables measured in terms of money nor demand curve left.
variables measured in terms of quantities or relative b. increased consumption, which shifts the aggregate-
prices demand curve right.
c. decreased consumption, which shifts the
16. Most economists believe that money neutrality
aggregate-demand curve right.
holds
d. decreased consumption, which shifts the
a. in the short run but not the long run. aggregate-demand curve left.
b. in both the short run and the long run.
22. When taxes decrease, consumption
c. in neither the short run nor the long run.
d. in the long run but not the short run. a. decreases as shown by a movement to the left along
a given aggregate-demand curve.
17. The aggregate demand and aggregate supply
b. decreases as shown by a shift of the aggregate
graph has
demand curve to the left.
c. increases as shown by a shift of the aggregate a. quantity of output supplied = natural rate of output +
demand curve to the right. a(actual price level - expected price level).
d. increases as shown by a movement to the right b. quantity of output supplied = natural rate of output +
along a given aggregate-demand curve. a(expected price level - actual price level).
23. Which of the following both shift aggregate c. quantity of output supplied = a(actual price level -
demand left? expected price level) - natural rate of output.
d. quantity of output supplied = a(expected price level
a. a decrease in taxes and at a given price level
- actual price level) - natural rate of output.
consumers feel more wealthy
b. a decrease in taxes and at a given price level 30. Which of the following shifts short-run
consumers feel less wealthy aggregate supply right?
c. an increase in taxes and at a given price level a. an increase in the price level
consumers feel more wealthy b. an increase in the minimum wage
d. an increase in taxes and at a given price level c. a decrease in the price of oil
consumers feel less wealthy d. more people migrate abroad than immigrate from
24. Suppose businesses in general believe that the abroad
economy is likely to head into recession and so 31. If aggregate demand shifts left, then in the short
they reduce capital purchases. Their reaction run
would initially shift a. the price level and real GDP both rise.
a. aggregate demand right. b. the price and real GDP both fall.
b. aggregate demand left. c. the price level rises and real GDP falls.
c. aggregate supply right. d. the price level falls and real GDP rises.
d. aggregate supply left. 32. In which case can we be sure real GDP rises in
25. Wages tend to be sticky the short run?
a. because of contracts, social norms, and notions of a. the money supply increases and taxes rise
fairness. b. the money supply decreases and taxes rise
b. because of contracts, but not social norms or c. the money supply increases and taxes fall
notions of fairness. d. None of the above are correct.
c. because of social norms and notions of fairness, but 33. If, for an imaginary closed economy, investment
not contracts. amounts to $10,000 and the government is
d. None of the above are correct. running a $2,500 deficit, then private saving
26. Which of the following would cause investment must amount to $7,500.
spending to increase and aggregate demand to a. True
shift right? b. False
a. an increase in the money supply, but not an 34. Alberta buys a paint sprayer and a lift for her car
investment tax credit customizing shop. A macroeconomist would
b. an investment tax credit, but not an increase in the refer to these purchases as investment.
money supply
a. True
c. both an increase in the money supply and an
b. False
investment tax credit
d. None of the above are correct. 35. Suppose a small closed economy has GDP of $5
billion, consumption of $3 billion, and
27. The long-run aggregate supply curve shifts right
government expenditures of $1 billion. Then
if
investment and national saving are both $2
a. immigration from abroad increases. billion.
b. the capital stock increases.
a. True
c. technology advances.
b. False
d. All of the above are correct.
36. The sale of either stocks or bonds to raise
28. According to the aggregate demand and
money is known as equity finance.
aggregate supply model, in the long run an
increase in the money supply leads to a. True
b. False
a. increases in both the price level and real GDP.
b. an increase in the price level but does not change 37. When a firm wants to borrow directly from the
real GDP. public to finance the purchase of new
c. an increase in real GDP but does not change the equipment, it does so by selling shares of stock.
price level. a. True
d. no change in either the price level or real GDP. b. False
29. Assuming that a is positive, theories of short- 38. In a small closed economy investment is $50
run aggregate supply are expressed billion and private saving is $55 billion. What are
mathematically as public saving and national saving?
a. $60 billion and $5 billion b. and gold coins are both commodity monies.
b. $50 billion and -$5 billion c. are fiat money and gold coins are commodity
c. $5 billion and $60 billion money.
d. -$5 billion and $50 billion d. and gold coins are both fiat monies.
39. Which of the following is a financial-market 47. John and Jane decide to go on a vacation. As a
transaction? result, they withdraw $2,500 from their savings
a. A saver buys shares in a mutual fund. account. As a result of this transfer by itself
b. A saver deposits money into a credit union. a. M1 increases by $2,500 and M2 stays the same.
c. A saver buys a bond a corporation has just issued b. M1 increases by $2,500 and M2 decreases by
so it can purchase capital. $2,500.
d. None of the above is correct. c. M1 decreases by $2,500 and M2 stays the same.
40. Compared to stocks, bonds offer the holder d. M1 decreases by $2,500 and M2 decreases by
$2,500.
a. lower risk and lower potential return.
b. lower risk and higher potential return. 48. The Central Bank
c. higher risk and lower potential return. a. is responsible for conducing the nation’s monetary
d. higher risk and higher potential return. policy, but it plays no role in regulating banks.
41. Banks b. is responsible for conducting the nation’s monetary
policy, and it plays a role in regulating banks.
a. play a role in creating an asset that people can use
c. is not responsible for conducting the nation’s
as a medium of exchange.
monetary policy, and it plays a role in regulating
b. are financial intermediaries, but mutual funds are
banks.
not financial intermediaries.
d. is not responsible for conducing the nation’s
c. are financial markets, as are bond markets.
monetary policy, and it plays no role in regulating
d. All of the above are correct.
banks.
42. A double coincidence of wants
49. When conducting an open-market sale, the
a. is required when there is no item in an economy that Central Bank
is widely accepted in exchange for goods and
a. buys government bonds, and in so doing increases
services.
the money supply.
b. is required in an economy that relies on barter.
b. buys government bonds, and in so doing decreases
c. is a hindrance to the allocation of resources when it
the money supply.
is required for trade.
c. sells government bonds, and in so doing increases
d. All of the above are correct.
the money supply.
43. You pay for cheese and bread from the deli with d. sells government bonds, and in so doing decreases
currency. Which function of money does this the money supply.
best illustrate?
50. When conducting an open-market purchase, the
a. medium of exchange Central Bank
b. unit of account
a. buys government bonds, and in so doing increases
c. store of value
the money supply.
d. liquidity
b. buys government bonds, and in so doing decreases
44. The ease with which an asset can be the money supply.
a. traded for another asset determines whether or not c. sells government bonds, and in so doing increases
that asset is a unit of account. the money supply.
b. converted into the economy’s medium of exchange d. sells government bonds, and in so doing decreases
determines the liquidity of that asset. the money supply.
c. transported from one place to another determines 51. A bank which must hold 100 percent reserves
whether or not that asset could serve as fiat money. opens in an economy that had no banks and a
d. converted into a store of value determines the currency of $100. If customers deposit $50 into
liquidity of that asset. the bank, what is the value of the money
45. Any item that people can use to transfer supply?
purchasing power from the present to the future a. $00
is called b. $50
a. a medium of exchange. c. $100
b. a unit of account. d. $150
c. a store of value. 52. If a bank has a reserve ratio of 8 percent, then
d. None of the above is correct.
a. government regulation requires the bank to use at
46. Paper dollars least 8 percent of its deposits to make loans.
a. are commodity money and gold coins are fiat b. the bank keeps 8 percent of its deposits as reserves
money. and loans out the rest.
c. the bank’s ratio of loans to deposits is 8 percent. b. has ever been employed.
d. the bank keeps 8 percent of its assets as reserves c. has chosen to participate in the labor market.
and loans out the rest. d. has chosen not to participate in the labor market.
53. A bank’s reserve ratio is 6.5 percent and the 61. Suppose there are a large number of men who
bank has $1,950 in reserve. Its deposits amount used to work or seek work who now no longer
to do either. Other things the same, this makes
a. $62.25. a. the number of people unemployed rise but does not
b. $126.75. change the labor force.
c. $22,500.00 b. the number of people unemployed rise but makes
d. $30,000.00. the labor force fall.
54. Suppose the banking system currently has $300 c. both the number of people unemployed and the
billion in reserves; the reserve requirement is 10 labor force fall.
percent; and excess reserves amount to $3 d. the number of people unemployed fall but does not
billion. What is the level of deposits? change the labor force.
a. $3,300 billion 62. Tara, the CEO of a corporation operating in a
b. $2,970 billion 63. There is a clear consensus among economists
c. $2,700 billion that unions are
d. $2,673 billion a. good for the economy because they result in higher
55. Which of the following is an asset of a bank and wages for most workers.
a liability for its customers? b. good for the economy because they are a necessary
a. deposits of its customers and loans to it customers antidote to the market power of employers.
b. deposits of its customers but not loans to its c. bad for the economy because they are cartels and
customers therefore detrimental to an efficient allocation of
c. loans of its customers but not the deposits of its resources.
customers d. None of the above is correct; there is no clear
d. neither the deposits of its customers nor the loans consensus among economists about whether
to its customers unions are good or bad for the economy.
56. A bank has a 10 percent reserve requirement, 64. The introduction of a union into an industry
$4,000 in deposits, and has loaned out all it can a. creates a surplus of labor and so raises
given the reserve requirement. unemployment.
a. It has $40 in reserves and $3,960 in loans. b. creates a surplus of labor and so reduces
b. It has $400 in reserves and $3,600 in loans. unemployment.
c. It has $444 in reserves and $3,556 in loans. c. creates a shortage of labor and so raises
d. None of the above is correct. unemployment.
d. creates a shortage of labor and so reduces
57. A bank has $200,000 in deposits and $190,000 in
unemployment.
loans. It has loaned out all it can. It has a reserve
ratio of 65. Workers searching for jobs that best suit them
is most closely associated with
a. 1 percent.
b. 2.5 percent. a. cyclical unemployment.
c. 5 percent. b. frictional unemployment.
d. 10 percent. c. seasonal unemployment.
d. structural unemployment.
58. If the reserve ratio is 5 percent, then $2,500 of
additional reserves can create up to 66. Policies that reduce the time it takes
unemployed workers to find new jobs
a. $62,500 of new money.
b. $50,000 of new money. a. can reduce both frictional unemployment and the
c. $45,600 of new money. natural rate of unemployment.
d. $37,500 of new money. b. can reduce frictional unemployment, but it cannot
reduce the natural rate of unemployment.
59. Who is not included in the labor force by the c. cannot reduce frictional unemployment, but it can
Bureau of Labor Statistics? reduce the natural rate of unemployment.
a. Calvin, who is on temporary layoff d. cannot reduce either frictional unemployment or the
b. Michael, who has retired and is not looking for work natural rate of unemployment.
c. Lauren, who does not have a job, but has applied 67. Wages in excess of their equilibrium level help
for several in the last week explain
d. None of the above is correct.
a. structural unemployment but not the natural rate of
60. The labor-force participation rate tells us the unemployment.
fraction of the population that b. the natural rate of unemployment but not structural
a. is able to participate in the labor market. unemployment.
c. both structural unemployment and the natural rate d. increase, which makes the value of money
of unemployment. decrease.
d. neither structural unemployment nor the natural rate 74. When the money market is drawn with the value
of unemployment. of money on the vertical axis, if the Central Bank
68. If the minimum wage were currently above the sells bonds, then the money supply curve
equilibrium wage, then a decrease in the a. shifts right, causing the price level to rise.
minimum wage that kept it above the b. shifts right, causing the price level to fall.
equilibrium wage would c. shifts left, causing the price level to rise.
a. increase the surplus of labor. d. shifts left, causing the price level to fall.
b. reduce the surplus of labor. 75. Consider the money market drawn with the
c. increase the shortage of labor. value of money on the vertical axis. If money
d. reduce the shortage of labor, demand is un-changed and the price level rises,
69. Unemployment insurance then
a. reduces the hardship of unemployment, but it also a. the money supply must have increased, perhaps
increases the amount of unemployment. because the Central Bank sold bonds.
b. reduces the incentive for the unemployed to find and b. the money supply must have increased, perhaps
take new jobs. because the Central Bank bought bonds.
c. causes workers to be less likely to seek guarantees c. the money supply must have decreased, perhaps
of job security when they negotiate with employers because the Central Bank bought bonds.
over the terms of employment. d. the money supply must have decreased, perhaps
d. All of the above are correct. because the Central Bank sold bonds.
70. Suppose that because of the popularity of the 76. If M = 4,000, P = 1.5, and Y= 6,000, what is
low-carb diet, bakeries need fewer workers and velocity?
steak houses need more workers. The a. 2.00
unemployment created by this change is b. 3.00
a. frictional unemployment created by efficiency c. 6.50
wages. d. None of the above is correct.
b. frictional unemployment created by sectoral shifts. 77. If velocity = 3.5, the quantity of money = 15,000,
c. structural unemployment created by efficiency and the price level = 1.2, then the real value of
wages. out-put is
d. structural unemployment created by sectoral shifts.
a. 3,571.43.
71. The value of money falls as the price level b. 4,285.71.
a. rises, because the number of dollars needed to buy c. 5,142.86.
a representative basket of goods falls. d. 43,750.00.
b. rises, because the number of dollars needed to buy 78. Based on the quantity equation, if M = 150, V =
a representative basket of goods rises. 4, and Y = 200, then P =
c. falls, because the number of dollars needed to buy
a. 3.
a representative basket of goods rises.
b. 2.
d. falls, because the number of dollars needed to buy
c. 1/2.
a representative basket of goods falls.
d. 1/3.
72. When the money market is drawn with the value
79. The evidence from hyperinflations indicates
of money on the vertical axis,
that money growth and inflation
a. money demand slopes downward and money
a. are positively related, which is consistent with the
supply is vertical.
quantity theory of money.
b. money demand slopes upward and money supply is
b. are positively related, which is not consistent with
horizontal.
the quantity theory of money.
c. money demand slopes downward and money
c. are not related in a discernible fashion, which is
supply is horizontal.
consistent with the quantity theory of money.
d. money demand slopes upward and money supply is
d. are not related in a discernible fashion, which is not
vertical.
consistent with the quantity theory of money.
73. Open-market purchases by the Central Bank
80. The inflation tax
make the money supply
a. is an alternative to income taxes and government
a. increase, which makes the value of money increase.
borrowing.
b. decrease, which makes the value of money
b. taxes most those who hold the most money.
decrease.
c. is the revenue created when the government prints
c. decrease, which makes the value of money
money.
increase.
d. All of the above are correct.
81. Shoeleather costs arise when higher inflation b. open market operations, reserve requirements
rates induce people to ratios, and the discount rate.
a. spend more time looking for bargains. c. capital gains taxes and investment tax credits.
b. spend less time looking for bargains. d. government purchases and transfer payments.
c. hold more money. 89. Monetary policy is determined by
d. hold less money. a. the president and Congress and involves changing
government spending and taxation.
82. The government operates a balanced budget b. the president and Congress and involves changing
when: the money supply.
a. all labor is fully employed. c. the Central Bank and involves changing government
b. tax rates exceed tax revenues. spending and taxation.
c. tax revenues exceed outlays. d. the Central Bank and involves changing the money
d. outlays and tax revenues are equal. supply.
83. Discretionary FISCAL POLICY is an attempt to 90. The goal of monetary policy and fiscal policy is
improve the macroeconomic environment to
through: a. offset the shifts in aggregate demand and thereby
a. legislated changes in government spending and tax eliminate unemployment.
polices. b. offset shifts in aggregate demand and thereby
b. automatic stabilizers to smooth economic activity. stabilize the economy.
c. enacting wage and price controls to ensure price c. enhance the shifts in aggregate demand and
level stability. thereby create fluctuations in output and
d. Presidential spending and taxation initiatives employment.
without Congressional approval. d. enhance the shifts in aggregate demand and
thereby increase economic growth
84. In a simple Macroeconomic model, if the Mpc =
3/5, closing a $60 billion GDP gap could be 91. Which of the following Central Bank actions
accomplished through new government would both decrease the money supply?
spending of: a. buy bonds and raise the reserve requirement
a. $15 billion. b. buy bonds and lower the reserve requirement
b. $24 billion. c. sell bonds and raise the reserve requirement
c. $36 billion. d. sell bonds and lower the reserve requirement
d. $40 billion. 92. According to the interest-rate effect, an increase
85. In a simple Macroeconomic model with mpc = in the price level will
.80, a $100 billion autonomous tax hike will: a. increase money demand and interest rates.
a. raise equilibrium income by $500 billion. Investment declines.
b. provide corporate executives with incentives to work b. increase money demand and interest rates.
harder. Investment increases.
c. lower equilibrium income by $500 billion. c. increase money demand, reduce interest rates, and
d. reduce equilibrium income by $400 billion. investment increases.
d. decrease money demand and interest rates.
86. If current GDP = $14 trillion, potential GDP = $15
Investment declines.
trillion, and the marginal propensity to save =
0.2, then achieving full employment without 93. If the Central Bank conducts open-market
inflation requires new federal purchases of $1 purchases, then which of the following
trillion to be offset by new autonomous taxes of: quantities increase(s)?
a. $500 billion. a. interest rates and investment spending
b. $1 trillion. b. interest rates, but not investment spending
c. $1.5 trillion c. investment spending, but not interest rates
d. $2 billion. d. neither interest rates nor investment spending
87. Price hikes during cost-push inflation are often 94. To stabilize interest rates, the Central Bank will
accompanied by: respond to an increase in money demand by
a. a falling unemployment rate. a. buying government bonds, which decreases the
b. expansion of national output. supply of money.
c. compensatory deflation. b. selling government bonds, which increases the
d. a rising unemployment rate. supply of money.
c. buying government bonds, which increases the
88. The set of macroeconomic policies with the
supply of money.
shortest implementation [administrative] lags
d. selling government bonds, which decreases the
would be changes in:
supply of money.
a. personal and corporate income taxes rates:
95. During recessions, automatic stabilizers tend to
 make the government's budget rates.
a. move toward deficit. d. decreasing the money supply, which lowers interest
b. move toward surplus. rates.
c. move toward balance. 100. Keynes used the term "animal spirits" to refer to
d. not necessarily move the budget in any particular a. policy makers harming the economy in the pursuit of
direction. self interest.
96. Opponents of active stabilization policy b. arbitrary changes in attitudes of household and
a. advocate a monetary policy designed to offset firms.
changes in the unemployment rate. c. mean-spirited economists who believed in the
b. argue that fiscal policy is unable to change classical dichotomy.
aggregate demand or aggregate supply. d. firms' relentless efforts to maximize profits.
c. believe that the political process creates lags in the 101. Suppose the MPC is 0.75. There are no crowding
implementation of fiscal policy. out or investment accelerator effects. If the
d. None of the above is correct. government increases its expenditures by $200
97. The price of imported oil rises. If the billion, then by how much does aggregate
government wanted to stabilize output, which of demand shift to the right? If the government
the following could it do? decreases taxes by $200 billion, then by how far
does aggregate demand shift to the right?
a. increase government expenditures or increase the
money supply a. $800 billion and $800 billion
b. increase government expenditures or decrease the b. $800 billion and $600 billion
money supply c. $600 billion and $600 billion
c. decrease government expenditures or increase the d. $600 billion and $450 billion
money supply 102. Initially, the economy is in long-run equilibrium.
d. decrease government expenditures or decrease the The aggregate demand curve then shifts $80
money supply billion to the left. The government wants to
98. Suppose there were a large increase in net change spending to offset this decrease in
exports. If the Central Bank wanted to stabilize demand. The MPC is 0.75. Suppose the effect on
output, it could aggregate demand of a tax change is 3/4 as
strong as the effect of a change in government
a. buy bonds to increase the money supply.
expenditure. There is no crowding out and no
b. buy bonds to decrease the money supply.
accelerator effect. What should the government
c. sell bonds to increase the money supply.
do if it wants to offset the decrease in real GDP?
d. sell bonds to decrease the money supply.
a. Raise both taxes and expenditures by $80 billion
99. If businesses and consumers become
dollars.
pessimistic, the Central Bank can attempt to
b. Raise both taxes and expenditures by $10 billion
reduce the impact on the price level and real
dollars.
GDP by
c. Reduce both taxes and expenditures by $80 billion
a. increasing the money supply, which raises interest dollars.
rates. d. Reduce both taxes and expenditures by $10
b. increasing the money supply, which lowers interest
rates. billion dollars.
c. decreasing the money supply, which raises interest
103. The table below uses data for the year 2015 provided by the Bureau of Labor Statistics and
adjusted to be comparable to U.S. data. All values are in thousands. Fill in the blank entries in
the table.
Adult Labor Unemployment Labor-Force
Country Employed Unemployed
Population Force Rate Participation Rate

Japan 100,000 64,000 4,000

France 28,000 3,000 0.7

Germany 64,000 40,000 0.085