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introduction to microeconomics

Questions and Answers of Introduction To Microeconomics

To close a recessionary gap(A) the aggregate demand curve should be shifted to the right.(B) the aggregate demand curve should be shifted to the left.(C) the aggregate supply curve should be shifted
The appropriate fiscal policy to remedy inflation is(A) for the federal government to run a deficit.(B) for the federal government to run a surplus.(C) increased taxes and government spending.(D)
The appropriate fiscal policy to remedy a recession is(A) for the federal government to run a deficit.(B) for the federal government to run a surplus.(C) increased taxes and government spending.(D)
A federal deficit occurs when(A) exports exceed imports.(B) imports exceed exports.(C) federal tax collections exceed spending.(D) federal spending exceeds federal tax revenues.(E) the federal
Fiscal policy is(A) increases in taxes to fight recessions.(B) decreases in taxes to fight inflations.(C) changes in government spending and taxes to fight recessions or inflations.(D) federal
Draw a short-run Phillips curve, making sure to label the axes correctly. Mark a point labeled “A” on the Phillips curve that represents an economy with a high unemployment rate. Do you recommend
Use the aggregate supply/aggregate demand diagram to portray an economy suffering from an inflationary gap. If nothing is done to address the gap, will resource prices rise or fall in the long run?
Use the aggregate supply/aggregate demand diagram to portray an economy suffering from a recessionary gap. Be sure to label all axes and curves. Do you recommend expansionary or contractionary
If the prices of resources increase, then(A) the economy slides up the Phillips curve.(B) the economy slides down the Phillips curve.(C) the Phillips curve shifts right.(D) the Phillips curve shifts
If the Fed conducts an effective contractionary monetary policy, then(A) the economy slides up the Phillips curve.(B) the economy slides down the Phillips curve.(C) the Phillips curve shifts
If the federal funds rate is above the Fed’s target, the Fed should(A) buy bonds to increase the money supply.(B) buy bonds to decrease the money supply.(C) sell bonds to increase the money
If an economy is producing above its long-run potential, an increase in interest rates would(A) increase output and prices.(B) decrease output and prices.(C) increase output and decrease prices.(D)
If an economy is producing below its long-run potential, expansionary monetary policy would(A) increase output and prices.(B) decrease output and prices.(C) increase output and decrease prices.(D)
If the Fed uses contractionary monetary policy, in the short run unemployment would(A) worsen, but inflation would come down.(B) improve, but inflation would worsen.(C) worsen as would inflation.(D)
In order to fight inflation the Fed should(A) increase the money supply in order to increase the federal funds rate.(B) increase the money supply in order to decrease the federal funds rate.(C)
If the economy is experiencing an inflationary gap,________ monetary policy could be used to ________ aggregate demand and ________ the general price level.(A) expansionary; decrease; decrease(B)
In a liquidity trap, expansionary monetary policy will not work because(A) banks do not want to make loans with their excess reserves.(B) interest rates cannot fall much further.(C) there is no way
A recessionary gap closes in the long run when wages and resource prices ________, shifting ________ to the right.(A) fall; aggregate demand(B) rise; long-run aggregate supply(C) fall; long-run
In the short run an expansionary monetary policy will cause(A) an increase in real GDP.(B) an increase in interest rates.(C) a decrease in consumer spending and an increase in investment.(D) an
An effective contractionary monetary policy can(A) increase employment.(B) increase production.(C) close a recessionary gap.(D) decrease the price level.(E) increase the money supply.
To reduce inflation in the macroeconomy, the Fed could try(A) increasing the money supply.(B) increasing the federal funds rate.(C) increasing income taxes.(D) expansionary monetary policy.(E)
To reduce unemployment in the macroeconomy, the Fed could try(A) to decrease interest rates in the economy.(B) increasing the federal funds rate.(C) decreasing income taxes.(D) contractionary
In a banking system with limited reserves, a decrease in the supply of money(A) lowers interest rates, decreases borrowing, and thereby decreases aggregate demand.(B) raises interest rates, increases
Explain why the long-run aggregate supply curve is drawn as a vertical line and the short-run aggregate supply curve is drawn upward sloping. Explain why the long-run effects of a change in foreign
Would you expect the same thing to happen to equilibrium output and the equilibrium price level in the long run? Redraw the aggregate supply/aggregate demand diagram using a longrun aggregate supply
Draw an aggregate supply/aggregate demand diagram. Label the axes of your diagram. Make the aggregate supply curve upward sloping. Show which curve shifts when foreigners suddenly develop a distaste
Stagflation could be caused by(A) an improvement in consumer confidence.(B) a decline in consumer confidence.(C) an increase in resource prices.(D) a decrease in resource prices.(E) wages and
Which of the following will promote economic growth?(A) Laws limiting immigration(B) A decrease in the money supply(C) An increase in the money supply(D) Price controls that keep prices low(E) An
Stagflation occurs when(A) aggregate supply shifts left.(B) aggregate supply shifts right.(C) aggregate demand shifts left.(D) aggregate demand shifts right.(E) inflation slows down.
What will happen to the equilibrium price level and the equilibrium quantity of output if a major earthquake destroys much of the plant and equipment on the West Coast? Assume an upward-sloping
What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate supply curve shifts to the left? Assume an upward-sloping aggregate supply curve.(A) The
What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate demand curve shifts to the right? Assume a long-run aggregate supply curve.(A) The equilibrium
What will happen to the equilibrium price level and the equilibrium quantity of output if consumer confidence increases? Assume an upward-sloping aggregate supply curve.(A) The equilibrium price
What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate demand curve shifts to the right? Assume an upward-sloping aggregate supply curve.(A) The
Which of the following would NOT shift the aggregate demand curve?(A) A change in consumer confidence(B) A change in technology(C) A change in the money supply(D) A change in spending by state
Which of the following would shift the aggregate demand curve to the left?(A) An increase in consumer confidence(B) Business firms reduce spending on plant and equipment(C) Foreigners develop a
Which of the following would NOT shift the aggregate supply curve?(A) An increase in the price level(B) A decrease in the amount of resources in the economy(C) An increase in the amount of resources
Which of the following would shift the short-run aggregate supply curve to the right?(A) Prices are expected to increase in the near future.(B) New government regulations slow factory production.(C)
Which of the following would shift the long-run aggregate supply curve to the right?(A) Prices are expected to decrease in the near future.(B) Immigration increases the size of the labor force.(C) A
Recessions(A) are a thing of the past.(B) are very severe depressions.(C) are typically accompanied by job losses.(D) occur at regular intervals.(E) are marked by a sustained increase in output.
A business cycle trough is immediately followed by the(A) nadir.(B) peak.(C) inflexion.(D) expansion.(E) contraction.
Would a person demand more or less money when the nominal interest rate increases to significantly higher levels? Explain why.
If the price level rises, will the supply or the demand for money be affected? Will it increase or decrease? Explain why.
Use the equation of exchange to explain why a 10 percent increase in the money supply would lead to an almost proportional increase in the price level.
Which of the following shifts the supply of money to the left?(A) An increase in the price level(B) An increase in the money supply(C) A decrease in the price level(D) A decrease in the money
Which of the following shifts the demand for money to the left?(A) An increase in the price level(B) An increase in the money supply(C) A decrease in the price level(D) A decrease in the money
If foreigners decide to invest more in our economy than previously, then we would expect to see the real interest rate(A) fall and the equilibrium quantity of funds to increase.(B) fall and the
Suppose our federal government needs to borrow more money than ever before. We would expect to see the equilibrium real interest rate(A) fall and the equilibrium quantity of funds to increase.(B)
Imagine an economy that previously banned foreign investors now opens its doors to these lenders. We would expect to see the equilibrium real interest rate(A) rise and the equilibrium quantity of
If the demand for loanable funds decreases, then the equilibrium real interest rate(A) rises but the equilibrium quantity of funds remains unchanged.(B) rises and the equilibrium quantity of funds
If the real interest rate is above its equilibrium value, then there will be(A) an excess supply of loanable funds that pushes the real interest rate down.(B) an excess supply of loanable funds that
The nominal interest rate is 6 percent, and the inflation rate is 2 percent. What is the real interest rate?(A) -4 percent(B) 3 percent(C) 4 percent(D) 8 percent(E) 12 percent
Which of the following is not a financial intermediary in the U.S.economy?(A) The U.S. Mint(B) Commercial banks(C) Investment banks(D) Savings and loan associations(E) Credit unions
The principle of monetary neutrality implies that an increase in the money supply will(A) increase real GDP and the price level.(B) increase real GDP but not the price level.(C) increase the price
According to the classical dichotomy, which of the following is influenced by monetary factors?(A) Nominal wages(B) Unemployment(C) Real GDP(D) Tonnage of steel produced in the U.S.(E) The standard
According to the classical dichotomy, if the money supply rises 5 percent, then(A) the velocity of money will fall 5 percent.(B) the price level will rise almost proportionally.(C) the GDP deflator
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then(A) nominal and real GDP would rise by 5 percent.(B) nominal GDP would rise by 5 percent;
According to the quantity theory of money, a decrease in the money supply would(A) raise the price level and output in the economy.(B) lower the price level and output in the economy.(C) raise the
Based on the equation of exchange, if M = 100, V = 3, and Y =150, then P =(A) 1/2.(B) 1.(C) 1.5.(D) 2.(E) 600.
Suppose that depository institutions did not use all of their excess reserves to make loans and buy investments. For example, if the reserve requirement was 10 percent, depository institutions would
Explain why the money supply changes when the central bank buys$10,000 worth of government securities in the secondary market.Why is the change in the money supply more than $10,000?
Assume the reserve requirement is 10 percent. If the central bank buys $10,000 worth of government securities in the secondary market, will the money supply expand or shrink? By exactly how much
If depositors across the economy decide to hold less currency and more demand deposits, then bank reserves ______ and M1 ______.(A) increase; decreases(B) increase; increases(C) decrease;
An increase in the discount rate ______ the monetary base and therefore M1 ______.(A) increases; is unaffected(B) increases; increases(C) increases; decreases(D) decreases; increases(E) decreases;
Assume the reserve requirement is 5 percent. If the central bank buys $4 million worth of government securities in an open market operation, then the money supply can(A) increase by $1.25 million.(B)
Assume the reserve requirement is 10 percent. If the central bank sells $29 million worth of government securities in an open market operation, then the money supply can(A) increase by $2.9
Which of the following could potentially lead to an expansion of the money supply?(A) The central bank increases the discount rate.(B) The central bank decreases the interest rate on bank
If the Fed buys bonds in the secondary market(A) the monetary base will increase.(B) the monetary base will decrease.(C) the monetary base will not be affected.(D) the discount rate would be
If the reserve requirement is 2 percent, then the money multiplier is(A) 5.(B) 5 percent.(C) 50.(D) 50 percent.(E) one-half.
The secondary market for government securities is(A) where used items are traded.(B) located in smaller cities.(C) where the government borrows money.(D) where government securities that have already
Required reserves(A) can be used by banks to make loans or buy investments.(B) can be held in a bank’s vault or its account at the Fed.(C) must be kept in a bank’s vault.(D) must be used to make
Given the table, M1 = ___.(A) $21 (B) $22 (C) $31 (D) $36 (E) $53 Federal Reserve Notes Savings Deposits Other Liquid Deposits Other Checkable Deposits $2 $9 $1; $8
Fiat money(A) is not backed by any precious commodity.(B) can be exchanged for gold.(C) is backed by gold but cannot be exchanged for it.(D) is not legal tender.(E) can be backed by gold or silver.
Which of the following statements is true?(A) Some of the things included in M2 are not as liquid as the things in M1.(B) M2 is smaller than M1.(C) M1 is backed by gold, and M2 is backed by
Which of the following is not included in M2?(A) Currency(B) Demand deposits(C) Other checkable deposits(D) Savings accounts(E) Credit cards
Which of the following is not included in M1?(A) Coins(B) Federal Reserve Notes(C) Demand deposits(D) Small time deposits(E) Other checkable deposits
It is unlikely that the unemployment rate will ever fall to zero because of(A) frictional unemployment.(B) cyclical unemployment.(C) government policies.(D) corporate policies.(E) the aged and infirm
There is a strong demand for welders in California but Bill, an unemployed welder, lives in New York. Bill is(A) frictionally unemployed.(B) cyclically unemployed.(C) structurally unemployed.(D)
Sue loses her job at a shoe factory when the economy falls into a recession. Sue is(A) frictionally unemployed.(B) cyclically unemployed.(C) seasonally unemployed.(D) structurally unemployed.(E) a
Fisher’s Hypothesis states that(A) the real interest rate equals the nominal interest rate plus the inflation rate.(B) the nominal interest rate equals the real interest rate minus the inflation
Rising prices are a problem because(A) money in household savings accounts can now buy fewer goods and services.(B) household incomes generally do not rise with prices.(C) the economy could run out
Given the information in the table, what is the unemployment rate in Ecoville?(A) 5 percent (B) 10 percent (C) 20 percent (D) 30 percent (E) 50 percent total population Data for Ecoville 6,000
The term “menu costs” refers to(A) fewer choices due to inflation.(B) financial assets being worth less due to inflation.(C) “à la carte” savings falling.(D) food prices rising due to
Which of the following is NOT a major cost of inflation?(A) Resources will be misallocated.(B) Wealth will be redistributed.(C) Savings will be discouraged.(D) Real incomes will fall.(E) Financial
If nominal GDP equals $6,000 and the GDP deflator equals 200, what does real GDP equal?(A) $30(B) $1,200(C) $3,000(D) $12,000(E) $1,200,000
If nominal GDP equals $5,000 and real GDP equals $4,000, then the GDP deflator equals(A) 0.8.(B) 1.25.(C) 125.(D) 300.(E) 800.
If the price of imported industrial robots increases, then the CPI will ___ and the GDP deflator will ___.(A) increase; increase(B) not be affected; not be affected(C) increase; not be affected(D)
When products improve in quality the CPI will(A) automatically increase.(B) automatically decrease.(C) become negative.(D) overestimate the inflation rate.(E) underestimate the inflation rate.
According to experts, the CPI(A) overstates increases in the cost of living.(B) understates increases in the cost of living.(C) accurately estimates changes in the cost of living.(D) could over- or
If the CPI goes to 150 from 120, then prices(A) increased 20 percent.(B) increased 25 percent.(C) decreased 30 percent.(D) increased 30 percent.(E) increased 150 percent.
If the price of olives imported into the United States decreases, then the GDP deflator will ____ and the CPI will _____.(A) decrease; decrease(B) decrease; remain unchanged(C) remain unchanged;
Is GDP an overestimate or an underestimate of all that is produced in a nation? Explain.
In what type of situation is GDP per capita more appropriate than nominal or real GDP?
Suppose that production and prices rise from one year to the next but population stays constant. Will each of the three statistics above rise, fall, or remain unchanged? Explain your reasoning.
Explain the difference between nominal GDP, real GDP, and GDP per capita.
Which of the following will have an effect on GDP?(A) You lose $50 betting with a friend.(B) You fix your brother’s car without buying any new parts.(C) Your father’s firm makes computers and
Which of the following events has no effect on GDP?(A) You buy a 1957 Chevy from a friend.(B) The Department of Transportation repaves a road.(C) Your friends make a music CD that doesn’t sell any
Given:Government expenditures.........................$300 Depreciation................................................$200 Investment...................................................$400
If a U.S. citizen buys a television made in Korea by a Korean firm, then this action by itself ____ U.S. net exports and ____ Korean net exports.(A) increases; does not affect(B) increases;
If your grandparents have a new home built for their retirement, this would primarily affect(A) consumption.(B) government purchases.(C) investment.(D) exports.(E) imports.

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