Question 1

If net exports are negative, then

Accepted Answer

A) net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by Americans are greater than American assets bought by foreigners. 
B) net capital outflow is positive (indicating an inflow of capital), so American assets bought by foreigners are greater than foreign assets bought by Americans. 
C) net capital outflow is negative (indicating an outflow of capital), so foreign assets bought by Americans are greater than American assets bought by foreigners. 
D) net capital outflow is negative (indicating an outflow of capital), so American assets bought by foreigners are greater than foreign assets bought by Americans. 
A) net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by Americans are greater than American assets bought by foreigners. 
B) net capital outflow is positive (indicating an inflow of capital), so American assets bought by foreigners are greater than foreign assets bought by Americans. 
C) net capital outflow is negative (indicating an outflow of capital), so foreign assets bought by Americans are greater than American assets bought by foreigners. 
D) net capital outflow is negative (indicating an outflow of capital), so American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 2

If there is a shortage of loanable funds, then

Accepted Answer

A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. 
A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

Question 3

Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent. It follows that the real rate of interest has

Accepted Answer

A) fallen. 
B) remained the same. 
C) risen to 8 percent. 
D) risen to 10 percent. 
A) fallen. 
B) remained the same. 
C) risen to 8 percent. 
D) risen to 10 percent.

Question 4

An increase in the real interest rate will

Accepted Answer

A) increase the inflationary premium. 
B) decrease the inflationary premium. 
C) increase the price of current consumption relative to future consumption. 
D) decrease the price of current consumption relative to future consumption. 
A) increase the inflationary premium. 
B) decrease the inflationary premium. 
C) increase the price of current consumption relative to future consumption. 
D) decrease the price of current consumption relative to future consumption.

Question 5

Suppose business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity. What is the likely effect on the loanable funds market?

Accepted Answer

A) The demand for loanable funds will increase, and the interest rate will rise. 
B) The demand for loanable funds will decrease, and the interest rate will fall. 
C) The supply for loanable funds will increase, and the interest rate will fall. 
D) The supply for loanable funds will decrease, and the interest rate will rise. 
A) The demand for loanable funds will increase, and the interest rate will rise. 
B) The demand for loanable funds will decrease, and the interest rate will fall. 
C) The supply for loanable funds will increase, and the interest rate will fall. 
D) The supply for loanable funds will decrease, and the interest rate will rise.

Question 6

Which of the following helps explain why the aggregate demand curve slopes downward?

Accepted Answer

A) If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less. 
B) If the price level increases, the purchasing power of the fixed quantity of money increases, causing people to buy more. 
C) If domestic prices increase, we substitute domestic goods for imported goods. 
D) If domestic prices decrease, we substitute imported goods for domestic goods. 
A) If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less. 
B) If the price level increases, the purchasing power of the fixed quantity of money increases, causing people to buy more. 
C) If domestic prices increase, we substitute domestic goods for imported goods. 
D) If domestic prices decrease, we substitute imported goods for domestic goods.

Question 7

The four key markets that coordinate the circular flow of income are

Accepted Answer

A) goods and services, resources, loanable funds, and foreign exchange. 
B) consumption, investment, stock, and government. 
C) government, household goods, bond, and business. 
D) financial, corporate, stock, and loanable funds. 
A) goods and services, resources, loanable funds, and foreign exchange. 
B) consumption, investment, stock, and government. 
C) government, household goods, bond, and business. 
D) financial, corporate, stock, and loanable funds.

Question 8

As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because

Accepted Answer

A) the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise. 
B) higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. 
C) the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances. 
D) all of the above are correct. 
A) the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise. 
B) higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. 
C) the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances. 
D) all of the above are correct.

Question 9

Long-run equilibrium in the goods and services market requires that

Accepted Answer

A) aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices. 
B) the unemployment rate is zero. 
C) prices are neither increasing nor decreasing. 
D) aggregate supply be larger than aggregate demand. 
A) aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices. 
B) the unemployment rate is zero. 
C) prices are neither increasing nor decreasing. 
D) aggregate supply be larger than aggregate demand.

Question 10

The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will

Accepted Answer

A) increase aggregate demand as consumers buy more. 
B) decrease aggregate demand as consumers buy less. 
C) cause firms to expand output since the higher product prices will improve profitability. 
D) cause firms to reduce output since the higher product prices will decrease profit margins. 
A) increase aggregate demand as consumers buy more. 
B) decrease aggregate demand as consumers buy less. 
C) cause firms to expand output since the higher product prices will improve profitability. 
D) cause firms to reduce output since the higher product prices will decrease profit margins.

Question 11

An unexpected sharp reduction in inflation will most likely result in

Accepted Answer

A) the rapid growth of output and employment. 
B) a reduction in the actual rate of unemployment. 
C) a reduction in the natural rate of unemployment. 
D) a temporary increase in unemployment and a decline in real output. 
A) the rapid growth of output and employment. 
B) a reduction in the actual rate of unemployment. 
C) a reduction in the natural rate of unemployment. 
D) a temporary increase in unemployment and a decline in real output.

Question 12

The difference between the money rate of interest and the real rate of interest is often called the

Accepted Answer

A) real balance effect. 
B) prime interest rate. 
C) inflationary premium. 
D) discount rate. 
A) real balance effect. 
B) prime interest rate. 
C) inflationary premium. 
D) discount rate.

Question 13

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

Accepted Answer

A) operates at an output greater than its long-run potential. 
B) operates at its maximum sustainable output. 
C) must also be experiencing stable prices (zero inflation). 
D) operates at an output less than its long-run potential. 
A) operates at an output greater than its long-run potential. 
B) operates at its maximum sustainable output. 
C) must also be experiencing stable prices (zero inflation). 
D) operates at an output less than its long-run potential.

Question 14

You put money into an account. One year later you see that you have 5 percent more dollars and that your money will buy 6 percent more goods.

Accepted Answer

A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) None of the above is correct. 
A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) None of the above is correct.

Question 15

If people suddenly anticipate that inflation will rise during the next year, which of the following is most likely?

Accepted Answer

A) Nominal interest rates will rise. 
B) Nominal interest rates will decline. 
C) The demand for goods and services will decline. 
D) Both the real and nominal interest rates will decline. 
A) Nominal interest rates will rise. 
B) Nominal interest rates will decline. 
C) The demand for goods and services will decline. 
D) Both the real and nominal interest rates will decline.

Question 16

If the real interest rate in the domestic loanable funds market increases,

Accepted Answer

A) firms will have an added incentive to undertake investment projects. 
B) households will save less. 
C) the net inflow of foreign capital will tend to increase. 
D) it will be cheaper to purchase goods and services now rather than in the future. 
A) firms will have an added incentive to undertake investment projects. 
B) households will save less. 
C) the net inflow of foreign capital will tend to increase. 
D) it will be cheaper to purchase goods and services now rather than in the future.

Question 17

A positive nominal interest rate indicates

Accepted Answer

A) how fast the number of dollars in your savings account is rising over time. 
B) how fast the purchasing power of your savings account is rising over time. 
C) the number of dollars in your savings account today. 
D) the purchasing power in your savings account today. 
A) how fast the number of dollars in your savings account is rising over time. 
B) how fast the purchasing power of your savings account is rising over time. 
C) the number of dollars in your savings account today. 
D) the purchasing power in your savings account today.

Question 18

Suppose that severe floods destroyed farms, homes, and businesses in the Midwest. Use the aggregate demand/aggregate supply model, to explain the changes you would expect to take place and the effects you would expect these floods to have on both output and prices. (Include both short-run and long-run effects.)

Accepted Answer

The destruction of output and the tempor

Question 19

The nominal (money) rate of interest

Accepted Answer

A) is the real rate of interest plus the inflationary premium. 
B) can be expected to decline as inflation accelerates. 
C) fell to historic lows during the 1970s when the United States experienced double-digit rates of inflation. 
D) can be expected to increase when the government is running a budget surplus. 
A) is the real rate of interest plus the inflationary premium. 
B) can be expected to decline as inflation accelerates. 
C) fell to historic lows during the 1970s when the United States experienced double-digit rates of inflation. 
D) can be expected to increase when the government is running a budget surplus.

If net exports are negative, then

If there is a shortage of loanable funds, then

Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent. It follows that the real rate of interest has

An increase in the real interest rate will

Suppose business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity. What is the likely effect on the loanable funds market?

Which of the following helps explain why the aggregate demand curve slopes downward?

The four key markets that coordinate the circular flow of income are

As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because

Long-run equilibrium in the goods and services market requires that

The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will

An unexpected sharp reduction in inflation will most likely result in

The difference between the money rate of interest and the real rate of interest is often called the

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

You put money into an account. One year later you see that you have 5 percent more dollars and that your money will buy 6 percent more goods.

If people suddenly anticipate that inflation will rise during the next year, which of the following is most likely?

If the real interest rate in the domestic loanable funds market increases,

A positive nominal interest rate indicates

The nominal (money) rate of interest

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 9: An Introduction to Basic Macroeconomic Markets

If net exports are negative, then

If there is a shortage of loanable funds, then

Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent. It follows that the real rate of interest has

An increase in the real interest rate will

Suppose business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity. What is the likely effect on the loanable funds market?

Which of the following helps explain why the aggregate demand curve slopes downward?

The four key markets that coordinate the circular flow of income are

As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because

Long-run equilibrium in the goods and services market requires that

The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will

An unexpected sharp reduction in inflation will most likely result in

The difference between the money rate of interest and the real rate of interest is often called the

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

You put money into an account. One year later you see that you have 5 percent more dollars and that your money will buy 6 percent more goods.

If people suddenly anticipate that inflation will rise during the next year, which of the following is most likely?

If the real interest rate in the domestic loanable funds market increases,

A positive nominal interest rate indicates

The nominal (money) rate of interest

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters