Question 1

Which of the following would generate a supply of euros in exchange for dollars?

Accepted Answer

A)  American demand for European real estate. 
B)  European demand for U.S. government bonds. 
C)  Americans vacationing in Europe. 
D)  Purchase of French wines by U.S. importers. 
A)  American demand for European real estate. 
B)  European demand for U.S. government bonds. 
C)  Americans vacationing in Europe. 
D)  Purchase of French wines by U.S. importers.

Question 2

In 1999, the nominal interest rate on a 30-year bond was around 5.85 percent. Assuming that investors have set these contracts expecting a real interest rate of 3 percent, what is the average rate of inflation that investors in the market are expecting over the next thirty years?

Accepted Answer

A)  2.85 percent 
B)  3 percent 
C)  5.85 percent 
D)  8.85 percent 
A)  2.85 percent 
B)  3 percent 
C)  5.85 percent 
D)  8.85 percent

Question 3

Falling interest rates cause the market value of previously issued bonds to

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  increase during periods of inflation but decline during periods of deflation. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  increase during periods of inflation but decline during periods of deflation.

Question 4

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the

Accepted Answer

A)  U.S. demand curve for Mexican pesos will shift rightward 
B)  U.S. demand curve for Mexican pesos will shift leftward 
C)  U.S. supply curve of Mexican pesos will shift leftward 
D)  U.S. supply curve of Mexican pesos will shift rightward 
A)  U.S. demand curve for Mexican pesos will shift rightward 
B)  U.S. demand curve for Mexican pesos will shift leftward 
C)  U.S. supply curve of Mexican pesos will shift leftward 
D)  U.S. supply curve of Mexican pesos will shift rightward

Question 5

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 6

(I) Fiscal policy involves altering government tax and spending policies. (II) Monetary policy encompasses those actions that alter the money supply.

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 7

Use the figure below to answer the following question(s).
Figure 9-2
  
-When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,

Accepted Answer

A)  the actual rate of unemployment will exceed the natural rate of unemployment. 
B)  buyers and sellers will have correctly anticipated the level of prices P₁. 
C)  the output Y₁ will not be sustainable in the future. 
D)  all of the above are correct. 
A)  the actual rate of unemployment will exceed the natural rate of unemployment. 
B)  buyers and sellers will have correctly anticipated the level of prices P₁. 
C)  the output Y₁ will not be sustainable in the future. 
D)  all of the above are correct.

Question 8

If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of interest, the real rate of interest is

Accepted Answer

A)  3 percent. 
B)  7 percent. 
C)  10 percent. 
D)  17 percent. 
A)  3 percent. 
B)  7 percent. 
C)  10 percent. 
D)  17 percent.

Question 9

The long-run aggregate supply curve is vertical, reflecting the fact that

Accepted Answer

A)  changes in price have no effect on output in the long run. In the long run, the price of goods and the price of resources move together and firms have no incentive to change their output. 
B)  fluctuations in inflation cannot be anticipated in the long run, so future prices have no effect on output. 
C)  changes in price affect output a lot in the long run because in the long run firms can adjust factory sizes to meet changing demand conditions. 
D)  changes in price have a large effect on output because they lead to highly variable interest rates, and business is hard to conduct under those circumstances. 
A)  changes in price have no effect on output in the long run. In the long run, the price of goods and the price of resources move together and firms have no incentive to change their output. 
B)  fluctuations in inflation cannot be anticipated in the long run, so future prices have no effect on output. 
C)  changes in price affect output a lot in the long run because in the long run firms can adjust factory sizes to meet changing demand conditions. 
D)  changes in price have a large effect on output because they lead to highly variable interest rates, and business is hard to conduct under those circumstances.

Question 10

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Accepted Answer

A)  decrease the natural rate of unemployment. 
B)  increase the natural rate of unemployment. 
C)  result in an actual rate of unemployment that is less than the natural rate of unemployment. 
D)  result in an actual rate of unemployment that is greater than the natural rate of unemployment. 
A)  decrease the natural rate of unemployment. 
B)  increase the natural rate of unemployment. 
C)  result in an actual rate of unemployment that is less than the natural rate of unemployment. 
D)  result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Question 11

Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, what is the real rate of interest Marta received?

Accepted Answer

A)  10 percent 
B)  5 percent 
C)  3 percent 
D)  2 percent 
E)  -2 percent 
A)  10 percent 
B)  5 percent 
C)  3 percent 
D)  2 percent 
E)  -2 percent

Question 12

Suppose people anticipate inflation will be 5 percent during the next several years. If the real rate of interest is 4 percent, the money rate of interest must be

Accepted Answer

A)  1 percent. 
B)  4 percent. 
C)  9 percent. 
D)  12 percent. 
A)  1 percent. 
B)  4 percent. 
C)  9 percent. 
D)  12 percent.

Question 13

The price of one country's currency in terms of another's is called

Accepted Answer

A)  the interest rate. 
B)  the inflationary premium. 
C)  the discount rate. 
D)  the exchange rate. 
A)  the interest rate. 
B)  the inflationary premium. 
C)  the discount rate. 
D)  the exchange rate.

Question 14

Other things constant, a decrease in aggregate demand will

Accepted Answer

A)  lead to a decrease in the demand for resources. 
B)  cause an increase in the general level of prices. 
C)  result in higher nominal wage rates. 
D)  reduce the rate of unemployment. 
A)  lead to a decrease in the demand for resources. 
B)  cause an increase in the general level of prices. 
C)  result in higher nominal wage rates. 
D)  reduce the rate of unemployment.

Question 15

Other things the same, when the interest rate rises

Accepted Answer

A)  people would want to lend more, making the supply of loanable funds increase. 
B)  people would want to lend less, making the supply of loanable funds decrease. 
C)  people would want to lend more, making the quantity of loanable funds supplied increase. 
D)  people would want to lend less, making the quantity of loanable funds supplied decrease. 
A)  people would want to lend more, making the supply of loanable funds increase. 
B)  people would want to lend less, making the supply of loanable funds decrease. 
C)  people would want to lend more, making the quantity of loanable funds supplied increase. 
D)  people would want to lend less, making the quantity of loanable funds supplied decrease.

Question 16

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 17

The "loanable funds market" is a term used by economists to describe the

Accepted Answer

A)  demand for goods and services by households. 
B)  market that includes resources such as labor and capital. 
C)  supply of goods and services by firms. 
D)  market that coordinates the borrowing and lending of individuals and firms. 
A)  demand for goods and services by households. 
B)  market that includes resources such as labor and capital. 
C)  supply of goods and services by firms. 
D)  market that coordinates the borrowing and lending of individuals and firms.

Question 18

Which of the following groups would most likely benefit from unanticipated inflation?

Accepted Answer

A)  borrowers 
B)  lenders 
C)  creditors 
D)  pensioners 
A)  borrowers 
B)  lenders 
C)  creditors 
D)  pensioners

Question 19

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 20

The portion of after-tax income a consumer does not spend on consumption is called

Accepted Answer

A)  investment. 
B)  saving. 
C)  supply. 
D)  temporary income. 
A)  investment. 
B)  saving. 
C)  supply. 
D)  temporary income.

Exam 9: A : an Introduction to Basic Macroeconomic Markets

Which of the following would generate a supply of euros in exchange for dollars?

In 1999, the nominal interest rate on a 30-year bond was around 5.85 percent. Assuming that investors have set these contracts expecting a real interest rate of 3 percent, what is the average rate of inflation that investors in the market are expecting over the next thirty years?

Falling interest rates cause the market value of previously issued bonds to

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the

If net exports are negative, then

(I) Fiscal policy involves altering government tax and spending policies. (II) Monetary policy encompasses those actions that alter the money supply.

Use the figure below to answer the following question(s). Figure 9-2 -When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,

If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of interest, the real rate of interest is

The long-run aggregate supply curve is vertical, reflecting the fact that

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, what is the real rate of interest Marta received?

Suppose people anticipate inflation will be 5 percent during the next several years. If the real rate of interest is 4 percent, the money rate of interest must be

The price of one country's currency in terms of another's is called

Other things constant, a decrease in aggregate demand will

Other things the same, when the interest rate rises

The aggregate demand curve slopes downward to the right because

The "loanable funds market" is a term used by economists to describe the

Which of the following groups would most likely benefit from unanticipated inflation?

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

The portion of after-tax income a consumer does not spend on consumption is called

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

B : 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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