Question 1

Which of the following provides the most accurate description of monetary policy?

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 government provision of goods to improve economic efficiency 
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 government provision of goods to improve economic efficiency 
D) the use of government taxation and expenditures to achieve macroeconomic goals A

Question 2

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 fell.Since new bonds would be paying a higher interest rate than old bonds,the only way to induce investors to buy old bonds will be for their price to fall,causing their effective interest rate to rise along with the market rate.

Question 3

For a major country with extensive capital flows,what is the effect of a decrease in interest rates?

Accepted Answer

A) There will be an inflow of capital,a currency depreciation,and increased net exports. 
B) There will be an inflow of capital,a currency depreciation,and reduced net exports. 
C) There will be an outflow of capital,a currency depreciation,and increased net exports. 
D) There will be an inflow of capital,a currency appreciation,and reduced net exports. 
A) There will be an inflow of capital,a currency depreciation,and increased net exports. 
B) There will be an inflow of capital,a currency depreciation,and reduced net exports. 
C) There will be an outflow of capital,a currency depreciation,and increased net exports. 
D) There will be an inflow of capital,a currency appreciation,and reduced net exports. C

Question 4

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 5

If the actual price level is lower than 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 6

Which of the following will most likely cause a decrease in short-run aggregate supply in the goods and services market?

Accepted Answer

A) an increase in the productivity of labor 
B) a reduction in the price of crude oil,a major imported commodity 
C) an increase in resource prices 
D) favorable weather conditions in agricultural areas 
A) an increase in the productivity of labor 
B) a reduction in the price of crude oil,a major imported commodity 
C) an increase in resource prices 
D) favorable weather conditions in agricultural areas

Question 7

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

Accepted Answer

A) a decrease in unemployment 
B) an increase in unemployment 
C) a decrease in the nominal interest rate 
D) a decrease in aggregate supply and real output 
A) a decrease in unemployment 
B) an increase in unemployment 
C) a decrease in the nominal interest rate 
D) a decrease in aggregate supply and real output

Question 8

If both borrowers and lenders anticipate the rate of inflation correctly,then

Accepted Answer

A) borrowers will lose real income. 
B) lenders will lose real income. 
C) both borrowers and lenders will lose real income. 
D) neither borrowers nor lenders will lose real income. 
A) borrowers will lose real income. 
B) lenders will lose real income. 
C) both borrowers and lenders will lose real income. 
D) neither borrowers nor lenders will lose real income.

Question 9

Other things equal,which of the following is true?

Accepted Answer

A) A reduction in prices will increase the real wealth of those holding a fixed quantity of money. 
B) A reduction in prices will lead to a decline in net exports. 
C) A reduction in prices will increase the scarcity of money,raise the real interest rate,and,thereby,encourage investment and consumption. 
D) A reduction in prices will increase profit margins and,thereby,stimulate additional investment. 
A) A reduction in prices will increase the real wealth of those holding a fixed quantity of money. 
B) A reduction in prices will lead to a decline in net exports. 
C) A reduction in prices will increase the scarcity of money,raise the real interest rate,and,thereby,encourage investment and consumption. 
D) A reduction in prices will increase profit margins and,thereby,stimulate additional investment.

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

Within the framework of the AD/AS model,if a long-run equilibrium is present in the goods and services market,

Accepted Answer

A) decision makers will have accurately forecast the current price level when they arrived at resource price and loanable funds agreements. 
B) the profit rates of the firms will generally exceed the competitive level. 
C) the actual rate of unemployment will fall below the natural rate of unemployment. 
D) the current rate of output will be sustainable in the future. 
E) both a and d are correct. 
A) decision makers will have accurately forecast the current price level when they arrived at resource price and loanable funds agreements. 
B) the profit rates of the firms will generally exceed the competitive level. 
C) the actual rate of unemployment will fall below the natural rate of unemployment. 
D) the current rate of output will be sustainable in the future. 
E) both a and d are correct.

Question 12

The aggregate demand curve slopes downward to the right because

Accepted Answer

A) as prices decrease,the real value of the fixed quantity of money increases and thereby stimulates consumer spending. 
B) a lower price level reduces the price of domestic goods relative to foreign goods,increasing net exports (the international substitution effect). 
C) a lower price level reduces the demand for money and lowers the real interest rate,stimulating consumption and investment spending (the interest rate effect). 
D) all of the above are correct. 
A) as prices decrease,the real value of the fixed quantity of money increases and thereby stimulates consumer spending. 
B) a lower price level reduces the price of domestic goods relative to foreign goods,increasing net exports (the international substitution effect). 
C) a lower price level reduces the demand for money and lowers the real interest rate,stimulating consumption and investment spending (the interest rate effect). 
D) all of the above are correct.

Question 13

The actual rate of unemployment will be greater than the natural rate of unemployment when

Accepted Answer

A) the actual output is less than the economy's potential output. 
B) the actual output is greater than the economy's potential output. 
C) the actual output is equal to the economy's potential output. 
D) the inflation rate has been relatively constant for several years. 
A) the actual output is less than the economy's potential output. 
B) the actual output is greater than the economy's potential output. 
C) the actual output is equal to the economy's potential output. 
D) the inflation rate has been relatively constant for several years.

Question 14

The short-run aggregate supply curve shows the relationship between

Accepted Answer

A) the general level of prices and the quantity of goods and services purchased by all consumers in the economy. 
B) the general level of prices and the quantity of goods and services that domestic firms will supply. 
C) the interest rate and the quantity of goods and services that domestic firms will supply. 
D) the money supply and the quantity of goods and services that domestic firms will supply. 
A) the general level of prices and the quantity of goods and services purchased by all consumers in the economy. 
B) the general level of prices and the quantity of goods and services that domestic firms will supply. 
C) the interest rate and the quantity of goods and services that domestic firms will supply. 
D) the money supply and the quantity of goods and services that domestic firms will supply.

Question 15

(I)If long-run equilibrium is present in the goods and services market,the current price level will equal the price level buyers and sellers anticipated.
(II)When an economy is in long-run equilibrium,the actual rate of unemployment will equal the natural rate of unemployment.

Accepted Answer

A) Both I and II are true. 
B) Both I and II are false. 
C) I is true;II is false. 
D) I is false;II is true. 
A) Both I and II are true. 
B) Both I and II are false. 
C) I is true;II is false. 
D) I is false;II is true.

Question 16

The vertical long-run aggregate supply curve reflects the fact that in the long run,an increase in the price level

Accepted Answer

A) will not alter the economy's maximum sustainable rate of output. 
B) will increase the economy's maximum sustainable rate of output. 
C) will reduce the quantity of goods and services purchasers will demand. 
D) will improve the overall efficiency of resource use. 
A) will not alter the economy's maximum sustainable rate of output. 
B) will increase the economy's maximum sustainable rate of output. 
C) will reduce the quantity of goods and services purchasers will demand. 
D) will improve the overall efficiency of resource use.

Question 17

When the economy is in macro equilibrium,

Accepted Answer

A) the sum of savings plus investment must equal the sum of imports plus exports. 
B) the sum of savings plus imports plus taxes must equal the sum of investment plus government purchases plus exports. 
C) the sum of savings plus government purchases must equal exports minus imports. 
D) the government's budget must be in balance. 
A) the sum of savings plus investment must equal the sum of imports plus exports. 
B) the sum of savings plus imports plus taxes must equal the sum of investment plus government purchases plus exports. 
C) the sum of savings plus government purchases must equal exports minus imports. 
D) the government's budget must be in balance.

Question 18

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years.If you expect that the inflation rate during the next five years will be 2 percent annually,what real rate of return do you expect to earn?

Accepted Answer

A) 2 percent 
B) 5 percent 
C) 7 percent 
D) 9 percent 
A) 2 percent 
B) 5 percent 
C) 7 percent 
D) 9 percent

Question 19

A decrease in the dollar price of foreign currency would cause

Accepted Answer

A) the nation's imports to increase and exports to decline. 
B) the nation's exports to increase and imports to decline. 
C) both imports and exports to decline. 
D) both imports and exports to rise. 
A) the nation's imports to increase and exports to decline. 
B) the nation's exports to increase and imports to decline. 
C) both imports and exports to decline. 
D) both imports and exports to rise.

Question 20

If a lender expects inflation to be 5 percent,and after a loan is made,actual inflation is 10 percent,which of the following will be true?

Accepted Answer

A) The lender will receive a lower real interest rate than he expected. 
B) The loan will be repaid with dollars that are worth more than the lender expected. 
C) The nominal rate of interest can be expected to fall in the future. 
D) The lender will gain at the expense of the borrower. 
A) The lender will receive a lower real interest rate than he expected. 
B) The loan will be repaid with dollars that are worth more than the lender expected. 
C) The nominal rate of interest can be expected to fall in the future. 
D) The lender will gain at the expense of the borrower.

Exam 9: Aan Introduction to Basic Macroeconomic Markets

Which of the following provides the most accurate description of monetary policy?

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?

For a major country with extensive capital flows,what is the effect of a decrease in interest rates?

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

If the actual price level is lower than the expected price level reflected in long-term contracts,

Which of the following will most likely cause a decrease in short-run aggregate supply in the goods and services market?

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

If both borrowers and lenders anticipate the rate of inflation correctly,then

Other things equal,which of the following is true?

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

Within the framework of the AD/AS model,if a long-run equilibrium is present in the goods and services market,

The aggregate demand curve slopes downward to the right because

The actual rate of unemployment will be greater than the natural rate of unemployment when

The short-run aggregate supply curve shows the relationship between

(I)If long-run equilibrium is present in the goods and services market,the current price level will equal the price level buyers and sellers anticipated. (II)When an economy is in long-run equilibrium,the actual rate of unemployment will equal the natural rate of unemployment.

The vertical long-run aggregate supply curve reflects the fact that in the long run,an increase in the price level

When the economy is in macro equilibrium,

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years.If you expect that the inflation rate during the next five years will be 2 percent annually,what real rate of return do you expect to earn?

A decrease in the dollar price of foreign currency would cause

If a lender expects inflation to be 5 percent,and after a loan is made,actual inflation is 10 percent,which of the following will be true?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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