Question 1

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.

Question 2

If the expected rate of inflation is zero, the

Accepted Answer

A)  real interest rate must also equal zero. 
B)  money (nominal) interest rate must also equal zero. 
C)  real interest rate must equal the money interest rate. 
D)  economy is likely to experience high inflation in the near future.

Question 3

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.

Question 4

Within the framework of the AD/AS model, when the current price level in the goods and services market is above the level anticipated at the time decision makers agreed to long-term resource contracts,

Accepted Answer

A)  producer profits will fall, leading to a reduction in output. 
B)  the natural rate of unemployment will rise. 
C)  the actual rate of unemployment will fall below the natural rate of unemployment. 
D)  output will be temporarily below the economy's long-run sustainable output.

Question 5

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.

Question 6

If a nation's currency depreciates, this will tend to

Accepted Answer

A)  shift a nation's balance of trade toward a deficit. 
B)  cause a deficit in the government's budget (expenditures - revenues). 
C)  make foreign goods more expensive for the nation's citizens. 
D)  make foreign goods cheaper for the nation's citizens.

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.

Question 8

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.

Question 9

If the quantity supplied of euro were greater than the quantity demanded, then the price of the

Accepted Answer

A)  euro would rise. 
B)  euro would fall. 
C)  dollar would fall. 
D)  euro would be in equilibrium.

Question 10

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has

Accepted Answer

A)  appreciated, and Americans will find English goods cheaper. 
B)  appreciated, and Americans will find English goods more expensive. 
C)  depreciated, and Americans will find English goods cheaper. 
D)  depreciated, and Americans will find English goods more expensive.

Question 11

If a U.S. dollar exchanges for 10 Mexican Pesos, the dollar price of a Peso is

Accepted Answer

A)  10 cents. 
B)  90 cents. 
C)  $1. 
D)  $10.

Question 12

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

Question 13

Which of the following situations would you prefer if you planned to borrow money?

Accepted Answer

A)  The nominal interest rate is 5 percent, and future prices are expected to be stable. 
B)  The nominal interest rate is 9 percent, and expected inflation is 7 percent. 
C)  The nominal interest rate is 4 percent, and expected inflation is 1 percent. 
D)  The nominal interest rate is 25 percent, and expected inflation is 22 percent.

Question 14

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 15

A positive nominal 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 in your savings account today.

Question 16

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

Accepted Answer

A)  euro would rise. 
B)  euro would fall. 
C)  dollar would rise. 
D)  euro would be in equilibrium.

Question 17

Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents

Accepted Answer

A)  nominal output or nominal GDP. 
B)  the interest rate. 
C)  real output or real GDP. 
D)  the consumer price index.

Question 18

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A)  higher interest rates and greater investment. 
B)  higher interest rates and less investment. 
C)  lower interest rates and greater investment. 
D)  lower interest rate and less investment.

Question 19

The exchange rate is

Accepted Answer

A)  another term for "interest rate." 
B)  another term for "growth rate." 
C)  the rate at which goods trade for one another across international borders. 
D)  the price of one currency in terms of another currency.

Question 20

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.

Exam 9: A : an Introduction to Basic Macroeconomic Markets