Question 1

Which two submarkets are included in the resource market?

Accepted Answer

A)  labor and loanable funds 
B)  physical capital and labor 
C)  consumption goods and bonds 
D)  loanable funds and exports 
A)  labor and loanable funds 
B)  physical capital and labor 
C)  consumption goods and bonds 
D)  loanable funds and exports B

Question 2

Within the framework of the AS/AD model, which of the following is a true statement regarding short-run aggregate supply?

Accepted Answer

A)  An increase in prices temporarily improves profit margins because important components of costs are fixed in the short run. 
B)  An increase in prices leads to higher interest rates, which temporarily improves profit margins. 
C)  An increase in prices leads to an expansion in the money supply, which stimulates additional output. 
D)  An increase in prices increases real wage rates and thereby expands the size of the economy's resource base. 
A)  An increase in prices temporarily improves profit margins because important components of costs are fixed in the short run. 
B)  An increase in prices leads to higher interest rates, which temporarily improves profit margins. 
C)  An increase in prices leads to an expansion in the money supply, which stimulates additional output. 
D)  An increase in prices increases real wage rates and thereby expands the size of the economy's resource base. A

Question 3

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

Accepted Answer

A)  the cost of purchasing goods and services during the current period will decrease. 
B)  the net inflow of capital from abroad will increase. 
C)  the inflationary premium will rise and the money rate of interest will decline. 
D)  a trade surplus will occur. 
A)  the cost of purchasing goods and services during the current period will decrease. 
B)  the net inflow of capital from abroad will increase. 
C)  the inflationary premium will rise and the money rate of interest will decline. 
D)  a trade surplus will occur. B

Question 4

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 5

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 6

In 2000, a major U.S. oil company began exploration off the southeastern coast of the United States. Suppose the company discovers huge reserves of natural gas. Using the aggregate demand/ aggregate supply model, predict what shifts will occur and what will happen to output and prices in both the long and short runs.

Accepted Answer

The discovery of natural gas reserves wi

Question 7

Suppose that your bank pays 5 percent interest on your savings account balance. Is this the nominal or real interest rate? What would be your real interest rate?

Accepted Answer

This is the nominal interest r

Question 8

The inflationary premium is that portion of the interest rate that reflects

Accepted Answer

A)  the real return derived by lenders. 
B)  the rush to buy goods before prices rise. 
C)  the expected annual rate of decline in the purchasing power of money while a loan is outstanding. 
D)  the price that one must pay for earlier availability of goods and services during a period of price stability. 
A)  the real return derived by lenders. 
B)  the rush to buy goods before prices rise. 
C)  the expected annual rate of decline in the purchasing power of money while a loan is outstanding. 
D)  the price that one must pay for earlier availability of goods and services during a period of price stability.

Question 9

Why do we use two supply curves in the aggregate goods and services market? What is the difference between them, and why do they have different slopes?

Accepted Answer

Aggregate supply is divided into two sup

Question 10

Monetary policy can be most accurately described as

Accepted Answer

A)  the use of government taxation and expenditures 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 deliberate control of the money supply to achieve macroeconomic goals. 
A)  the use of government taxation and expenditures 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 deliberate control of the money supply to achieve macroeconomic goals.

Question 11

A depreciation in the U.S. dollar on the foreign exchange market will

Accepted Answer

A)  make U.S. exports more expensive to foreigners. 
B)  make imports less expensive for U.S. consumers. 
C)  make U.S. exports cheaper for foreign consumers. 
D)  encourage U.S. consumers to travel abroad. 
A)  make U.S. exports more expensive to foreigners. 
B)  make imports less expensive for U.S. consumers. 
C)  make U.S. exports cheaper for foreign consumers. 
D)  encourage U.S. consumers to travel abroad.

Question 12

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 13

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 14

Answer the following questions:
a.What is a bond?
b.If bonds make fixed payments every year, explain how a reduction in market interest rates will increase the price of the bond in the market.

Accepted Answer

a.A bond is an IOU that allows firms or

Question 15

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 16

As prices rise, consumers and businesses will want to hold larger money balances. This will lead to

Accepted Answer

A)  a reduction in the demand for resources and reduced resource prices. 
B)  an increase in the amount of goods and services demanded due to the real balance effect. 
C)  an increase in exports due to the international substitution effect. 
D)  a reduction in the supply of loanable funds and an increase in the interest rate. 
A)  a reduction in the demand for resources and reduced resource prices. 
B)  an increase in the amount of goods and services demanded due to the real balance effect. 
C)  an increase in exports due to the international substitution effect. 
D)  a reduction in the supply of loanable funds and an increase in the interest rate.

Question 17

When the loanable funds and foreign exchange markets are in equilibrium,

Accepted Answer

A)  there are no leakages from the circular flow of income. 
B)  macro equilibrium cannot occur. 
C)  the leakages from the circular flow will equal the injections into it. 
D)  injections into the circular flow will exceed leakages from it. 
A)  there are no leakages from the circular flow of income. 
B)  macro equilibrium cannot occur. 
C)  the leakages from the circular flow will equal the injections into it. 
D)  injections into the circular flow will exceed leakages from it.

Question 18

The macroeconomy is said to be in long-run equilibrium only if

Accepted Answer

A)  the resource, loanable funds, foreign exchange, and goods and services markets are all in equilibrium. 
B)  prices were incorrectly estimated by decision makers. 
C)  the output of the economy exceeds the full-employment level of output. 
D)  the economy is operating along its short-run aggregate supply curve. 
A)  the resource, loanable funds, foreign exchange, and goods and services markets are all in equilibrium. 
B)  prices were incorrectly estimated by decision makers. 
C)  the output of the economy exceeds the full-employment level of output. 
D)  the economy is operating along its short-run aggregate supply curve.

Question 19

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 20

The exchange rate is

Accepted Answer

A)  the price of one nation's currency in terms of the currency of another nation. 
B)  the amount households will spend on imports. 
C)  the amount of foreign capital a nation receives when there is a trade surplus. 
D)  the amount charged by bankers for loanable funds 
A)  the price of one nation's currency in terms of the currency of another nation. 
B)  the amount households will spend on imports. 
C)  the amount of foreign capital a nation receives when there is a trade surplus. 
D)  the amount charged by bankers for loanable funds

Exam 9: B : an Introduction to Basic Macroeconomic Markets

Which two submarkets are included in the resource market?

Within the framework of the AS/AD model, which of the following is a true statement regarding short-run aggregate supply?

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

When the economy is in macro equilibrium,

Suppose that your bank pays 5 percent interest on your savings account balance. Is this the nominal or real interest rate? What would be your real interest rate?

The inflationary premium is that portion of the interest rate that reflects

Why do we use two supply curves in the aggregate goods and services market? What is the difference between them, and why do they have different slopes?

Monetary policy can be most accurately described as

A depreciation in the U.S. dollar on the foreign exchange market will

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?

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?

Answer the following questions: a.What is a bond? b.If bonds make fixed payments every year, explain how a reduction in market interest rates will increase the price of the bond in the market.

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

As prices rise, consumers and businesses will want to hold larger money balances. This will lead to

When the loanable funds and foreign exchange markets are in equilibrium,

The macroeconomy is said to be in long-run equilibrium only if

Fiscal policy is

The exchange rate is

The Economic Approach

A : Some Tools of the Economist

B : Some Tools of the Economist

A : Supply, Demand, and the Market Process

B : Supply, Demand, and the Market Process

A : Supply and Demand: Applications and Extensions

B : Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

A : Taking the Nations Economic Pulse

B : Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

A : an Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, Incentives, and Secondary Effects

A : Money and the Banking System

B : 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

Consumer Choice and Elasticity

A : Costs and the Supply of Goods

B : Costs and the Supply of Goods

A : Price Takers and the Competitive Process

B : Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A : Price-Searcher Markets With High Entry Barriers

B : Price-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

Special Topic 1 : Government Spending and Taxation

Special Topic 2 : The Economics of Social Security

Special Topic 3 : The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity

Special Topic 4 : Great Debates in Economics: Keynes Versus Hayek

Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future

Special Topic 6 : Lessons from the Great Depression

Special Topic 7 : Lessons from Japan and Canada

Special Topic 8 : The Federal Budget and the National Debt

Special Topic 9 : The Economics of Healthcare

Special Topic 10 : Education: Problems and Performance

Special Topic 11 : Earnings Differences Between Men and Women

Special Topic 12 : Do Labor Unions Increase the Wages of Workers?

Special Topic 13 : The Question of Resource Exhaustion

Special Topic 14 : Difficult Environmental Cases and the Role of Government

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