Question 1

As prices rise, people will buy fewer goods and services because

Accepted Answer

A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased. 
A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased.

Question 2

The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level rises,

Accepted Answer

A)  real wealth falls, interest rates rise, and net exports fall. 
B)  real wealth falls, interest rates rise, and net exports rise. 
C)  real wealth rises, interest rates fall, and net exports fall. 
D)  real wealth rises, interest rates fall, and net exports rise. 
A)  real wealth falls, interest rates rise, and net exports fall. 
B)  real wealth falls, interest rates rise, and net exports rise. 
C)  real wealth rises, interest rates fall, and net exports fall. 
D)  real wealth rises, interest rates fall, and net exports rise.

Question 3

The aggregate demand curve indicates the relationship between

Accepted Answer

A)  the real wage rate and the quality of resources demanded by producers of goods and services. 
B)  the interest rate and the amount of loanable funds demanded by borrowers. 
C)  the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium. 
D)  the general price level and the aggregate quantity of goods and services demanded. 
A)  the real wage rate and the quality of resources demanded by producers of goods and services. 
B)  the interest rate and the amount of loanable funds demanded by borrowers. 
C)  the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium. 
D)  the general price level and the aggregate quantity of goods and services demanded.

Question 4

If the expected rate of inflation is zero, the real interest rate must

Accepted Answer

A)  also equal zero. 
B)  be greater than the money (nominal) interest rate. 
C)  be equal to the money (nominal) interest rate. 
D)  be less than the money (nominal) interest rate. 
A)  also equal zero. 
B)  be greater than the money (nominal) interest rate. 
C)  be equal to the money (nominal) interest rate. 
D)  be less than the money (nominal) interest rate.

Question 5

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 6

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

Accepted Answer

A)  Zari would have been better off if she had bought pounds in the United States where U.S. dollars were cheaper. 
B)  Zari would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C)  The pounds were more expensive in London because a currency is always most valued in its home country. 
D)  The pounds were more expensive in the United States because they are less available there. 
E)  It doesn't matter where she buys the pounds, since she can't use U.S. money anyway once she's in England. 
A)  Zari would have been better off if she had bought pounds in the United States where U.S. dollars were cheaper. 
B)  Zari would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C)  The pounds were more expensive in London because a currency is always most valued in its home country. 
D)  The pounds were more expensive in the United States because they are less available there. 
E)  It doesn't matter where she buys the pounds, since she can't use U.S. money anyway once she's in England.

Question 7

Other things constant, an increase in the expected inflation rate will

Accepted Answer

A)  decrease the inflationary premium. 
B)  increase money (nominal) interest rates. 
C)  increase the supply of loanable funds. 
D)  decrease the money interest rate. 
A)  decrease the inflationary premium. 
B)  increase money (nominal) interest rates. 
C)  increase the supply of loanable funds. 
D)  decrease the money interest rate.

Question 8

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 9

The real rate of interest is

Accepted Answer

A)  interest paid by commercial banks. 
B)  interest paid by the Fed. 
C)  equal to the money rate of interest plus the inflationary premium. 
D)  the money rate of interest adjusted for inflation. 
A)  interest paid by commercial banks. 
B)  interest paid by the Fed. 
C)  equal to the money rate of interest plus the inflationary premium. 
D)  the money rate of interest adjusted for inflation.

Question 10

The difference between the money interest rate and the real interest rate is the

Accepted Answer

A)  prime interest rate. 
B)  nominal interest rate. 
C)  exchange rate. 
D)  inflationary premium. 
A)  prime interest rate. 
B)  nominal interest rate. 
C)  exchange rate. 
D)  inflationary premium.

Question 11

Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this trend have on the foreign exchange market?

Accepted Answer

A)  The U.S. overall demand for foreign exchange, and British pounds, in particular, will increase. 
B)  The U.S. overall demand for foreign exchange, and British pounds, in particular, will decrease. 
C)  The U.S. demand for British pounds will increase, but the overall demand for foreign exchange will probably decrease. 
D)  The U.S. demand for British pounds will decrease, but the overall demand for foreign exchange will probably increase. 
A)  The U.S. overall demand for foreign exchange, and British pounds, in particular, will increase. 
B)  The U.S. overall demand for foreign exchange, and British pounds, in particular, will decrease. 
C)  The U.S. demand for British pounds will increase, but the overall demand for foreign exchange will probably decrease. 
D)  The U.S. demand for British pounds will decrease, but the overall demand for foreign exchange will probably increase.

Question 12

If there is surplus of loanable funds, then

Accepted Answer

A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 13

People anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, the money interest rate will be

Accepted Answer

A)  1 percent. 
B)  3 percent. 
C)  4 percent. 
D)  7 percent. 
A)  1 percent. 
B)  3 percent. 
C)  4 percent. 
D)  7 percent.

Question 14

The aggregate demand curve is downward sloping because

Accepted Answer

A)  an increase in the price level will cause an increase in spending on goods and services. 
B)  at lower price levels, real wealth decreases, causing a decrease in the quantity demanded of goods and services. 
C)  at lower price levels, interest rates increase, causing a decrease in the quantity demanded of goods and services. 
D)  at lower price levels, net exports increase, causing an increase in quantity demanded of goods and services. 
A)  an increase in the price level will cause an increase in spending on goods and services. 
B)  at lower price levels, real wealth decreases, causing a decrease in the quantity demanded of goods and services. 
C)  at lower price levels, interest rates increase, causing a decrease in the quantity demanded of goods and services. 
D)  at lower price levels, net exports increase, causing an increase in quantity demanded of goods and services.

Question 15

The international substitution effect exists because a

Accepted Answer

A)  higher price level will reduce interest rates and stimulate foreign investment. 
B)  lower price level will make domestically produced goods less expensive relative to foreign goods. 
C)  higher price level will reduce the purchasing power of money. 
D)  lower price level will encourage Americans to import more foreign goods. 
A)  higher price level will reduce interest rates and stimulate foreign investment. 
B)  lower price level will make domestically produced goods less expensive relative to foreign goods. 
C)  higher price level will reduce the purchasing power of money. 
D)  lower price level will encourage Americans to import more foreign goods.

Question 16

Under what circumstances will inflation help borrowers at the expense of lenders? Under what circumstances will both parties be unaffected? Which scenario would you expect in the long run?

Accepted Answer

Only when inflation increases more than

Question 17

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 18

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 19

A positive real 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 of 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 of your savings account today.

Question 20

In the short run, a price increase in the goods and services market will

Accepted Answer

A)  increase the purchasing power of money. 
B)  improve producer profits and, thereby, induce suppliers to expand output. 
C)  increase resource prices, lower profits, and lead to a decline in output. 
D)  reduce the natural rate of unemployment. 
A)  increase the purchasing power of money. 
B)  improve producer profits and, thereby, induce suppliers to expand output. 
C)  increase resource prices, lower profits, and lead to a decline in output. 
D)  reduce the natural rate of unemployment.

As prices rise, people will buy fewer goods and services because

The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level rises,

The aggregate demand curve indicates the relationship between

If the expected rate of inflation is zero, the real interest rate must

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

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

Other things constant, an increase in the expected inflation rate will

The real interest rate is

The real rate of interest is

The difference between the money interest rate and the real interest rate is the

Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this trend have on the foreign exchange market?

If there is surplus of loanable funds, then

People anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, the money interest rate will be

The aggregate demand curve is downward sloping because

The international substitution effect exists because a

Under what circumstances will inflation help borrowers at the expense of lenders? Under what circumstances will both parties be unaffected? Which scenario would you expect in the long run?

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

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

A positive real interest rate indicates

In the short run, a price increase in the goods and services market will

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

Special Topics

Filters

Exam 9: An Introduction to Basic Macroeconomic Markets

As prices rise, people will buy fewer goods and services because

The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the price level rises,

The aggregate demand curve indicates the relationship between

If the expected rate of inflation is zero, the real interest rate must

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

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

Other things constant, an increase in the expected inflation rate will

The real interest rate is

The real rate of interest is

The difference between the money interest rate and the real interest rate is the

Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this trend have on the foreign exchange market?

If there is surplus of loanable funds, then

People anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, the money interest rate will be

The aggregate demand curve is downward sloping because

The international substitution effect exists because a

Under what circumstances will inflation help borrowers at the expense of lenders? Under what circumstances will both parties be unaffected? Which scenario would you expect in the long run?

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

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

A positive real interest rate indicates

In the short run, a price increase in the goods and services market will

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

Special Topics

Filters