1. The depreciation of currency will:
Improve a country’s comparative advantage.
Balance a trade surplus.
Worsen a country’s comparative advantage.
Have no impact on a country’s comparative advantage.
2. US imports involve an:
Inflow of dollars from foreigners to the United States economy
Outflow of dollars from the United States to foreigners
Outflow of foreign currency from the United States to foreigners
Inflow of foreign currency from foreigners to the U.S. economy
3. Suppose farmers can use their land to grown either wheat or corn The law of supply predicts that an increase in the market price of wheat will cause:
Farmers to raise the production of corn and wheat.
Farmers to lower the production of corn and wheat.
Farmers to substitute corn for the production of wheat.
Farmers to substitute wheat for the production of corn.
4. In which of the following situations is a budget surplus most likely to occur?
When fiscal policy is contractionary and the economy is expanding
When the economy is contracting
When fiscal policy is expansionary
When fiscal policy is expansionary and the economy is contracting
5. According to the Classical growth model an economy that increases its saving will grow:
Quickly since the increase in saving will permit more rapid technological progress.
Quickly since the increase in saving will permit greater investment.
Slowly because consumption and aggregate demand will be reduced.
Slowly because interest rates will fall, causing investment to decline.
6. The law of demand states that quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes:
Down, the quantity demanded goes down.
Up, the quantity demanded goes down.
Down, the quantity demanded stays the same.
Up, the quantity demanded also goes up.
7. If a country wants to prevent its exchange rates from falling, it could:
Pursue easier monetary policy
Remove restrictions on imports
Remove any subsidies on exports
Place restrictions on imports
8. News Story Workers at a car-manufacturing plant in Flint Michigan are laid off because the economy is weak and GM cars aren’t selling well. GM isn’t sure when the plant will reopen. What type of unemployment describes the workers’ situation?
9. The interest rate is the price paid for use of a:
10. Which of the following topics is best characterized as a macroeconomic issue?
The decision by Apple to produce fewer Macintosh computers
The effect of an increase in federal spending on the unemployment rate
The choice a student makes in selecting college course
The effect of a drought on the price of corn
11. How do investment in technology and investment in capital differ?
They have similar effects on output so they have no important differences from an economic point of view.
They have the same effects on output but investments in technology are much more closely tied to the level of saving than investments in capital.
They have different effects on output because of the positive externalities associated with investments in capital.
They have different effects on output because of the positive externalities associate with investments in technology.
12. As a country develops economically what changes usually take place in the goods it exports?
There is little change because comparative advantage does not change.
Services and manufactured goods decline in importance and are replaced by raw materials and agricultural products.
Exports go from being diversified to being specialized in whatever the country finds to its comparative advantage.
Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.
13. When interest rates rise people are:
More likely to borrow, that is, purchase a financial asset.
More likely to borrow, that is, sell a financial asset.
Less likely to borrow, that is, purchase a financial asset.
Less likely to borrow, that is, sell a financial asset.
14. If banks hold excess reserves whereas before they did not the money multiplier:
Will become larger
Will be unaffected
Will become smaller
Might increase or might decrease
15. Using the expenditure approach, gross domestic product equals:
Gross national product
The sum of consumption, investment, government purchases, and net exports
Gross national product minus net exports
The sum of consumption, investment, and government purchases
16. Macroeconomics is:
An analysis of economic reality that proceeds from the parts to the whole.
The study of aggregate economic relationships.
The study of individual choice and how that choice is influenced by economic forces.
The study of pricing policies of firms and the purchasing decisions of households.
17. The largest expenditure component of GDP is:
18. Quotas and tariffs can:
Have the same effect on the price of domestically produced goods if they are set appropriately.
Yield the same amount of tax revenue if they are set appropriately.
Both increase international trade by the same amount if set appropriately.
Never have the same effect on imports and import prices.
19. If income increases more rapidly than expected, then:
Tax revenues will be lower than expected.
The budget is less likely to be in surplus.
Spending on income-support programs will likely be lower than expected.
Estimates of the target rate of employment are likely to increase.
20. Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?
An increase in government spending
No change in taxes or government spending
An increase in taxes
A reduction in government spending
21. According to Keynes, why might deflation create problems for an economy?
In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail.
The cost of repricing goods would increase costs, and therefore reduce profits, for businesses and they would cut production.
Consumers might expect prices to fall further and cut back consumption now.
People would drop out of unions because unions would become ineffective at keeping wages of members high.
22. Globalization that allows governments to pursue expansionary policies can be dangerous because it can lead to:
Goods price inflation
A reduction in the debt ceiling
Asset price inflation
Goods price deflation
23. Which of the following is the path through which contractionary monetary policy works?
Money down implies interest rate up implies investment down implies income down.
Money down implies interest rate down implies investment up implies income down.
Money down implies interest rate up implies investment up implies income down.
Money down implies interest rate down implies investment down implies income down.
24. Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:
A decline in the level of aggregate demand.
A decline in aggregate supply.
An increase in the minimum wage.
An increase in the bargaining power of labor unions.
25. Which of the following types of unemployment is considered to be the most controllable through demand-side macroeconomic policy?
26. Central banks are responsible for:
Monetary policy but not fiscal policy
Fiscal policy but not monetary policy
Both monetary policy and fiscal policy
Neither monetary policy nor fiscal policy
27. The government of Crossland wants to influence its exchange rate. It will do so by buying and selling:
Currencies in its official reserves
Goods and services from the current account
28. What would make foreigners want to buy more from the United States?
Inflation in the United States
A fall in the value of the dollar in the foreign exchange market
Higher interest rates in the United States
29. According to Keynes, market economies:
Are constantly experiencing significant declines in aggregate demand.
Quickly recover after they experience a significant decline in aggregate demand.
Never experience significant declines in aggregate demand.
May recover slowly after they experience a significant decline in aggregate demand.
30. If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of: