Question 1

If the actual price level exceeds the expected price level reflected in long-term contracts,

Accepted Answer

A) many firms will find production more profitable than they had expected and will increase the quantity of output supplied. 
B) many firms will find production less profitable than they had expected and will decrease the quantity of output supplied. 
C) many firms will find production more profitable than they had expected and will decrease the quantity of output supplied. 
D) many firms will find production less profitable than they had expected and will increase the quantity of output supplied. 
A) many firms will find production more profitable than they had expected and will increase the quantity of output supplied. 
B) many firms will find production less profitable than they had expected and will decrease the quantity of output supplied. 
C) many firms will find production more profitable than they had expected and will decrease the quantity of output supplied. 
D) many firms will find production less profitable than they had expected and will increase the quantity of output supplied.

Question 2

When the foreign exchange market is in equilibrium, which of the following will be true?

Accepted Answer

A) imports + exports = net capital inflow 
B) imports - exports = net capital inflow 
C) imports - budget deficit = net savings 
D) imports + investment = exports + savings 
A) imports + exports = net capital inflow 
B) imports - exports = net capital inflow 
C) imports - budget deficit = net savings 
D) imports + investment = exports + savings

Question 3

Other things constant, if the cost of labor goes down, the profits of firms will

Accepted Answer

A) increase, and short-run aggregate supply will shift to the right. 
B) fall, and short-run aggregate supply will shift to the left. 
C) increase, and long-run aggregate supply will shift to the right. 
D) fall, and long-run aggregate supply will shift to the left. 
A) increase, and short-run aggregate supply will shift to the right. 
B) fall, and short-run aggregate supply will shift to the left. 
C) increase, and long-run aggregate supply will shift to the right. 
D) fall, and long-run aggregate supply will shift to the left.

Question 4

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A) the supply of loanable funds would shift right and investment would increase. 
B) the supply of loanable funds would shift left and investment would decrease. 
C) the demand for loanable funds would shift right and investment would increase. 
D) the demand for loanable funds would shift left and investment would decrease. 
A) the supply of loanable funds would shift right and investment would increase. 
B) the supply of loanable funds would shift left and investment would decrease. 
C) the demand for loanable funds would shift right and investment would increase. 
D) the demand for loanable funds would shift left and investment would decrease.

Question 5

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?

Accepted Answer

A) People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment. 
B) People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will exceed the natural rate of unemployment. 
C) The actual inflation rate will be greater than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment. 
D) Actual inflation will be less than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment. 
A) People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment. 
B) People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will exceed the natural rate of unemployment. 
C) The actual inflation rate will be greater than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment. 
D) Actual inflation will be less than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment.

Question 6

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment. 
A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment.

Question 7

What is the difference between short-run equilibrium and long-run equilibrium in the goods and services market?

Accepted Answer

Short-run equilibrium occurs at prices w

Question 8

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the

Accepted Answer

A) interest rate effect. 
B) real balance effect. 
C) investment effect. 
D) disinvestment effect. 
A) interest rate effect. 
B) real balance effect. 
C) investment effect. 
D) disinvestment effect.

Question 9

Which of the following are leakages from the circular flow of income?

Accepted Answer

A) Savings, taxes, and imports 
B) Investment, government purchases, and exports 
C) Investment, taxes and bonds 
D) Imports, wages and taxes 
A) Savings, taxes, and imports 
B) Investment, government purchases, and exports 
C) Investment, taxes and bonds 
D) Imports, wages and taxes

Question 10

The real interest rate is

Accepted Answer

A) the premium that borrowers must pay in order to acquire more purchasing power. 
B) the reward lenders receive in exchange for their willingness to delay consumption into the future. 
C) equal to the money interest rate minus the inflationary premium. 
D) all of the above. 
A) the premium that borrowers must pay in order to acquire more purchasing power. 
B) the reward lenders receive in exchange for their willingness to delay consumption into the future. 
C) equal to the money interest rate minus the inflationary premium. 
D) all of the above.

Question 11

In the context of aggregate supply, the long run is defined as the period during which

Accepted Answer

A) some prices are set by contracts and cannot be adjusted. 
B) prices can change, but neither aggregate supply nor aggregate demand can shift. 
C) individuals have sufficient time to modify their behavior in response to price changes. 
D) quantity changes cannot occur in response to changes in relative prices. 
A) some prices are set by contracts and cannot be adjusted. 
B) prices can change, but neither aggregate supply nor aggregate demand can shift. 
C) individuals have sufficient time to modify their behavior in response to price changes. 
D) quantity changes cannot occur in response to changes in relative prices.

Question 12

A decrease in the dollar price of the English pound will make

Accepted Answer

A) U.S.exports to England increase. 
B) U.S.exports less expensive for the English. 
C) imports from England more expensive for Americans. 
D) U.S.exports to England decrease. 
A) U.S.exports to England increase. 
B) U.S.exports less expensive for the English. 
C) imports from England more expensive for Americans. 
D) U.S.exports to England decrease.

Question 13

For an economy, aggregate demand equals

Accepted Answer

A) consumption plus investment plus government purchases plus exports. 
B) consumption plus investment plus government purchases plus (exports minus imports). 
C) consumption plus investment plus (taxes minus transfers) plus (exports minus imports). 
D) consumption plus investment plus government purchases plus (imports minus exports). 
A) consumption plus investment plus government purchases plus exports. 
B) consumption plus investment plus government purchases plus (exports minus imports). 
C) consumption plus investment plus (taxes minus transfers) plus (exports minus imports). 
D) consumption plus investment plus government purchases plus (imports minus exports).

Question 14

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has

Accepted Answer

A) appreciated, and Americans will find English goods cheaper. 
B) appreciated, and Americans will find English goods more expensive. 
C) depreciated, and Americans will find English goods cheaper. 
D) depreciated, and Americans will find English goods more expensive. 
A) appreciated, and Americans will find English goods cheaper. 
B) appreciated, and Americans will find English goods more expensive. 
C) depreciated, and Americans will find English goods cheaper. 
D) depreciated, and Americans will find English goods more expensive.

Question 15

Suppose the annual rate of inflation has been 3 percent during each of the last three years and that borrowers and lenders have come to expect this rate of inflation. If the inflation rate unexpectedly rises,

Accepted Answer

A) borrowers gain at the expense of lenders. 
B) lenders will gain at the expense of borrowers. 
C) the real interest rate will exceed the nominal interest rate. 
D) there is no reason to expect that the inflation will help borrowers relative to lenders. 
A) borrowers gain at the expense of lenders. 
B) lenders will gain at the expense of borrowers. 
C) the real interest rate will exceed the nominal interest rate. 
D) there is no reason to expect that the inflation will help borrowers relative to lenders.

Question 16

Fiscal policy is

Accepted Answer

A) the deliberate control of the money supply to achieve macroeconomic goals. 
B) the use of the government's regulatory powers to improve economic efficiency. 
C) the operation of business enterprises by the government. 
D) the use of government taxation and expenditures to achieve macroeconomic goals. 
A) the deliberate control of the money supply to achieve macroeconomic goals. 
B) the use of the government's regulatory powers to improve economic efficiency. 
C) the operation of business enterprises by the government. 
D) the use of government taxation and expenditures to achieve macroeconomic goals.

Question 17

When the exchange rate is determined by market forces and an economy is experiencing a net inflow of capital, the economy will tend to

Accepted Answer

A) run a budget deficit. 
B) run a trade deficit. 
C) experience an increase in the supply of money. 
D) experience a reduction in the supply of money. 
A) run a budget deficit. 
B) run a trade deficit. 
C) experience an increase in the supply of money. 
D) experience a reduction in the supply of money.

Question 18

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Accepted Answer

The price of bonds already in the market

Question 19

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

Accepted Answer

A) As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services. 
B) As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased. 
C) As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased. 
D) As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services. 
A) As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services. 
B) As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased. 
C) As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased. 
D) As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.

Question 20

Figure 9-3  
-Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

Accepted Answer

A) the demand curve will shift from D1 to D2 
B) the demand curve will shift from D2 to D1 
C) the supply curve will shift from S1 to S2 
D) the supply curve will shift from S2 to S1 
E) neither the demand for nor the supply curve will shift 
A) the demand curve will shift from D1 to D2 
B) the demand curve will shift from D2 to D1 
C) the supply curve will shift from S1 to S2 
D) the supply curve will shift from S2 to S1 
E) neither the demand for nor the supply curve will shift

If the actual price level exceeds the expected price level reflected in long-term contracts,

When the foreign exchange market is in equilibrium, which of the following will be true?

Other things constant, if the cost of labor goes down, the profits of firms will

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?

If a reform of the tax laws encourages greater saving, the result would be

What is the difference between short-run equilibrium and long-run equilibrium in the goods and services market?

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the

Which of the following are leakages from the circular flow of income?

The real interest rate is

In the context of aggregate supply, the long run is defined as the period during which

A decrease in the dollar price of the English pound will make

For an economy, aggregate demand equals

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has

Suppose the annual rate of inflation has been 3 percent during each of the last three years and that borrowers and lenders have come to expect this rate of inflation. If the inflation rate unexpectedly rises,

Fiscal policy is

When the exchange rate is determined by market forces and an economy is experiencing a net inflow of capital, the economy will tend to

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

Figure 9-3 -Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

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 the actual price level exceeds the expected price level reflected in long-term contracts,

When the foreign exchange market is in equilibrium, which of the following will be true?

Other things constant, if the cost of labor goes down, the profits of firms will

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?

If a reform of the tax laws encourages greater saving, the result would be

What is the difference between short-run equilibrium and long-run equilibrium in the goods and services market?

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the

Which of the following are leakages from the circular flow of income?

The real interest rate is

In the context of aggregate supply, the long run is defined as the period during which

A decrease in the dollar price of the English pound will make

For an economy, aggregate demand equals

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has

Suppose the annual rate of inflation has been 3 percent during each of the last three years and that borrowers and lenders have come to expect this rate of inflation. If the inflation rate unexpectedly rises,

Fiscal policy is

When the exchange rate is determined by market forces and an economy is experiencing a net inflow of capital, the economy will tend to

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

Figure 9-3 -Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

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