Question 1

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.

Question 2

Use the figure below to answer the following question(s). Figure 9-2
 Which of the following is true for the economy depicted in Figure 9-2?

Accepted Answer

A)  Potential output equals y1. 
B)  It would be impossible for this economy to achieve an output greater than y1. 
C)  When output y1 is achieved, the actual rate of unemployment will exceed the natural rate of unemployment. 
D)  When output y1 is achieved, the actual rate of unemployment will be less than the natural rate of unemployment.

Question 3

A vertical long-run aggregate supply curve indicates that

Accepted Answer

A)  an increase in the price level will not expand an economy's output capacity in the long run. 
B)  outputs greater than the long-run supply constraint cannot be achieved. 
C)  an increase in the price level will permit the economy to achieve a higher level of output. 
D)  an increase in the price level will promote technological change and more rapid economic growth.

Question 4

The aggregate supply curve indicates the

Accepted Answer

A)  relationship between prices and the aggregate quantity of goods and services purchased by consumers, investors, governments, and foreigners (net exports). 
B)  relationship between prices and the natural rate of unemployment. 
C)  relationship between the real wage rate and the quantity of labor supplied by households. 
D)  quantity of goods and services producers will supply at different price levels.

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.

Question 6

The price that a person must pay in order acquire purchasing power now rather than in the future is called

Accepted Answer

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

Question 7

As the dollar depreciates, which of the following is most likely to occur?

Accepted Answer

A)  More Americans will travel abroad. 
B)  American imports will rise. 
C)  More foreigners will visit the United States. 
D)  American firms will increase their investments abroad.

Question 8

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

Accepted Answer

A)  increase the natural rate of unemployment. 
B)  reduce 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 9

Saving is

Accepted Answer

A)  the sum of the funds people hold in their checking accounts. 
B)  after-tax income that is not spent on consumption. 
C)  always equal to consumption. 
D)  equal to disposable income plus consumption.

Question 10

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.

Question 11

When persistent inflation is present, we would expect

Accepted Answer

A)  borrowers to systematically gain at the expense of lenders. 
B)  lenders to systematically gain at the expense of borrowers. 
C)  nominal interest rates to be higher than would be true if prices were stable. 
D)  nominal interest rates to be lower than real interest rates.

Question 12

The resource market involves transactions dealing with

Accepted Answer

A)  natural resources and financial services. 
B)  the borrowing and lending of financial capital. 
C)  the buying and selling of final goods and services. 
D)  labor services, natural resources, and physical capital.

Question 13

When equilibrium is present in the foreign exchange market, which of the following will tend to be in balance?

Accepted Answer

A)  the value of goods exported and the value of goods imported 
B)  real and nominal interest rates 
C)  imports plus capital outflow and exports plus capital inflow 
D)  tax revenues and government expenditures

Question 14

Who among the following is most likely to favor an appreciation of the U.S. dollar?

Accepted Answer

A)  a German professor visiting Chicago 
B)  an American farmer who depends on exports 
C)  an American professor on a tour of Austrian universities 
D)  Disney World in Orlando, Florida, a popular destination for foreign tourists

Question 15

You put money into an account. One year later you see that you have 5 percent more dollars and that your money will buy 6 percent more goods.

Accepted Answer

A)  The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C)  The nominal interest rate was 5 percent and the inflation rate was −1 percent. 
D)  None of the above is correct.

Question 16

When equilibrium is present, if market conditions do not change,

Accepted Answer

A)  the current price will tend to rise in the future, and the current quantity will tend to fall. 
B)  the current price will tend to fall in the future, and the current quantity will tend to rise. 
C)  the current price and quantity will tend to persist in the future. 
D)  the current price will tend to persist in the future, but the current quantity will tend to rise.

Question 17

In the AD/AS model, the aggregate demand for goods and services is composed of the purchases made by

Accepted Answer

A)  households and foreigners (net exports). 
B)  businesses, bondholders, and foreigners (net exports). 
C)  businesses and governments. 
D)  consumers, investors, governments, and foreigners (net exports).

Question 18

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

Question 19

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.

Question 20

Which of the following will be true when the foreign exchange market is in equilibrium and exports exceed imports?

Accepted Answer

A)  The nation is experiencing a trade deficit. 
B)  There will be a net inflow of capital. 
C)  There will be a net outflow of capital. 
D)  The exchange rate value of the domestic currency must rise.

Exam 9: An Introduction to Basic Macroeconomic Markets