1. Business cycles are linked to the interaction between: a. the foreign exchange rate and the balance of payments account. b. the aggregate demand and aggregate supply curves. c. the demand and supply curves for a particular good. d. the substitution and the wealth effect. e. the long-run aggregate supply curve and the aggregate resource curve. 2. represents the relation between total expenditures, or total spending, and the price level.a. Gross National Product b. Inflation c. Real Gross Domestic Product d. Aggregate supply e. Aggregate demand 3. Other things equal, investment spending will increase when: a. interest rates are lowered. b. firms operate under full capacity. c. corporate taxes are increased. d. capacity utilization is low. e. the cost of capital rises. 4. The wealth effect, the interest rate effect, and the international trade effect account for the: a. positive slope of the short-run aggregate supply curve. b. the shape of the long-run aggregate supply curve. c. positive slope of the aggregate demand curve. d. negative slope of the aggregate demand curve. e. negative slope of the short-run aggregate supply curve. 5. Identify the correct statement about the aggregate supply curve. a. The aggregate supply curve is irrelevant for determining macroeconomic equilibrium. b. The aggregate supply curve shows the various quantities of a particular good that is produced in the economy. c. The aggregate supply curve shows an inverse relationship between price level and employment. d. The aggregate supply curve shifts inward with an increase in consumer spending, investment, government spending, and net exports. e. The aggregate supply curve relates total output in the economy to alternative price levels. 6. The short-run aggregate supply curve will shift to the left if: a. there is a significant increase in worker productivity. b. workers on fixed-wage contracts expect higher inflation. c. the price of raw materials decreases. d. the price of capital goods rises. e. wages fall in anticipation of higher prices.7. The intersection of the aggregate demand and the aggregate supply curve defines the equilibrium level of and the price level. a. real interest rate b. nominal interest rate c. nominal GDP d. real GDP e. Unemployment 8. The sum of consumption and saving is called a. net investment b. net income c. personal income d. disposable income 9. The consumption function illustrates that: a. saving increases as disposable income decreases. b. consumption increases as saving increases. c. consumption increases as disposable income increases. d. consumption increases as disposable income decreases. e. consumption increases as investment increases. 10. Autonomous consumption is defined as: a. the level of consumption that depends only on the exchange rate. b. the consumption expenditures incurred by the government. c. the level of consumption that does not depend on income. d. an equilibrium condition that needs to be met for the aggregate expenditure model to work. e. the part of consumption that is related to investment. 11. Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will be equal to a. 0.12 b. 0.8 C. 0.7 d. 0.4e. 0.04 12. The second-largest component of aggregate expenditures in the United States is a, consumption b. investment c. government expenditure d, imports e. exports 13. When the government uses taxes and spending to affect national economy, it is engaging in: a. fiscal policy. b. monetary policy. c. interest rate policy. d. trade policy. e, exchange rate policy. 14. Which of the following will be observed if the U.S. federal government reduces fiscal spending, keeping other things constant? a. The aggregate demand curve will shift to the right. b. The aggregate expenditure in the economy will decrease. c. The economy will approach potential GDP. d. The marginal propensity to consume will increase. e. The average price level will increase. 15. Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million. a. 0.2 b. 0.5 c. 2 d. 5 e. 616. Which of the following correctly explain Ricardian equivalence? a. Government spending that is financed by borrowing has a smaller effect on the economy than government spending financed by raising taxes. b. Consumers do not base current spending on future expected tax liabilities. c. Government borrowing can function like increased current taxes, reducing current household and business expenditures. d. The government should balance its budget by equating revenue and expenditure in every fiscal year. e. Government spending does not crowd out private investment. 17. A U.S. federal budget deficit that raises real interest rates is most likely to: a, lead to a depreciation of the dollar in the foreign exchange market. b. encourage foreign investment in U.S. securities. c. lead to an increase in exports. d. lead to an appreciation of other currencies relative to the U.S. dollar. e. discourage imports of foreign goods. 18. National debt can be defined as: a. the total money supply in the economy. b. the total stock of government bonds outstanding. c. the difference between real GDP and potential GDP. d. the change in fiscal deficit that results from an increase in government spending. e, the total volume of private investment in the country. 19. Which of the following is a form of a direct tax? a. Personal income tax b. Sales tax c. Excise duty d. Import tariff e, Value-added tax 20. An asset that can easily be exchanged for goods and services is referred to as:a. an intangible asset. b. a productive resource. c. a liquid asset. d. a fixed asset. e. a scarce resource. 21. Money fails to act as a store of value when: a. it is no longer backed by gold. b. the inflation rate is very high. c. the goods produced in an economy are indivisible. d. the economy goes into a recession. e. coins are replaced by paper money. 22. Which of the following is true of other checkable deposits? a. They are checking account deposits at commercial banks and do not pay any interest. b. They are accounts at financial institutions that pay interest and give the depositor check- writing privileges. c. They comprise solely of demand deposits at mutual savings banks. d. They are not included in the MI money supply. e. They are savings deposits that earn interest at savings and loan associations. 23. The M2 measure of money supply includes all of the following, except: a. demand deposits. b. U.S. government securities. c. savings deposits. d. money market deposits. e. certificates of deposit. 24. Which of the following is true of international reserve currencies? a. They are used for international exchange of goods and services. b. They are used to settle international debt. c. They are used for international bookkeeping.d. They are held for government investment abroad. e. They are created for international stock market trading. 25. Which of the following is a transactions account? a. Currency b. Travelers' checks c. A savings account d. A credit card balance e. A demand deposit 26. The Gramm-Leach-Bliley Act (GLBA), passed by the U.S. Congress in the year 1999, allows commercial bank a. operate in all foreign countries. b. open new branches in Cuba. c. expand their business into other areas of finance, including insurance and selling securities. d. raise reserve requirements for other financial institutions. e. eliminate unit banking. The table given below shows the components of money supply in an economy. Table 12.1 Money Component Amount (in millions) Currency $550 Travelers' Checks $20 Savings Deposits $180NOW Accounts $185 Small-Denomination Time Deposits $620 Retail Money Market Mutual Funds $605 ATS Accounts $180 Demand Deposits $210 27. Refer to Table 12.1 and calculate the value of M1. a. $550 million b. $570 million c. $780 million d. $1, 125 million e. $1, 145 million 28. The main source of earning profits for banks is: a. government securities. b. saving accounts. c. reserves. d. loans. e. checking account fees. 29. A Eurodollar loan is a(n): a. ECU-denominated loan issued by a U.S. bank. b. dollar-denominated loan payable to a European bank. c. ECU-denominated loan that is subject to banking regulations in both the United States and Europe. d. dollar-denominated loan issued outside the U.S. domestic banking system. e. loan by the European Community to the U.S. government.Table 12.2 Balance Sheet Assets Liabilities Cash $ 5.000 Demand Deposits $20,000 Loans 15,000 Total Assets $20,000 Total Liabilities $20,000 30. Refer to Table 12.2. With a reserve requirement of 20 percent, the bank has excess reserves of a. $5,000 b. $3,000 c. $2,000 d. $1,000 e. $2,500 31. Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could a. $500 b. $1,000 c. $2,000 d. $3,000 e. $4,000The table given below records the amount of new deposits, the value of required reserves, and total amount loaned out try Table 12.3 Bank New Deposit Required Reserves Loans Bank 1 $10,000 $1,00 $9,000 Bank 2 $9,000 $900 $8,100 Bank 3 $8, 100 $810 $7,290 *Assume all excess reserves are loaned out. 32. Refer to Table 12.3. What is the total increase in the money supply created in the banking system as a result of the ini $10,000 in Bank 1? a. $10,000 b. $27,100 c. $100,000 d. $90,000 e. $20,000 33. Which of the following government agencies oversees monetary policy in the U.S.? a. The Federal Reserve System b. Congress c. The Treasury Department d. The Federal Trade Commission e. The Department of Commerce 34. The Federal Reserve System divides the U.S. into districts. a. 5 b. 21 C. 6 d. 12 e. 1735. The quantity theory of money asserts that: a. changes in nominal GDP are inversely related to changes in the velocity of money. b. changes in money supply are positively related to changes in the velocity of money. c. changes in the money supply are unrelated to changes in the price level. d. changes in the output level are unrelated to changes in the price level. e. changes in the money supply are directly related to changes in nominal GDP. 36. According to the equation of exchange, if the money supply is $800 million, real GDP is $3,000 million, and nominal million, then the velocity of money is equal to: a. 3.5. b. 1.7. c. 10.3. d. 5. e. 2. 37. The interest rate that banks pay for borrowing overnight from other banks is called: a. bank rate. b. target rate. c. federal funds rate. d. real interest rate. e. prime lending rate. 38. If interest rates decrease: a. the quantity of money demanded will not change. b. the money demand function will shift to the right. c, the quantity of money demanded will decrease. d. the money demand function will shift to the left. e. the quantity of money demanded will increase. 39. The Phillips curve is named after the economist A. W. Phillips, who found that there is: a. an inverse relationship between the PPI and the budget deficit in the United States. b. an inverse relationship between wage rates in Great Britain and the unemployment rate. c. an inverse relationship between economic growth and the unemployment rate in Great Britain. d. a positive relationship between inflation and the unemployment rate in the United States. e. a positive relationship between British national debt and economic downturns.40. The slope of the short-run Phillips curve is consistent with: a. the long-run trade-off between the unemployment rate and inflation. b. the long-run trade-off between inflation and GDP. c. the short-run trade-off between the money supply and interest rates. d. the short-run trade-off between business productivity and wage contracts. 41. Which of the following macroeconomic schools of thought has dominated the economics profession from the 1940s il a. New classical economics b. Classical economics c. Keynesian economics d. Rational economics e. Positive economics 42. According to the text, as compared to rich countries, most of the poor countries do not fare well because: a. they have no oil. b. the people in these countries have limited property rights. c. access to education in these countries is very limited. d. high tariffs in these countries prevent international trade. e. they do not have any natural resources. 43. is the primary reason that explains why some nations are richer than the others. a. A democratic government b. A strong judicial system c. Access to education d. Private ownership e. A stable currency44. Shirley can choose between peanut butter pretzels and caramel coated popcorn for her evening snack. According to ec caramel coated popcorn would be the forgone peanut butter pretzels. a. internal b. opportunity c. average d. transaction e. social 45. If you have a choice of consuming either two apples, three oranges, or one candy bar, the opportunity cost of the cand a. two apples. b. three oranges. c. two apples and three oranges. d. two apples or three oranges, whichever you value more. e. the difference in the prices of the three options. 46. Given that resources can be allocated by the government, the market, a random process, or on a first-come first-serve following statements is true? a. The market system is not entirely fair but it creates incentives to increase supplies and improve standards of living b. The random process of allocation allows individuals to acquire purchasing power and enhances the value of the re they own. c. Since the government system does not distinguish between those who have income and those that do not, govern of resources is the most efficient. d. There will be no shortages under the first-come first-serve basis of allocation. e. A random process of allocation is fair in the sense that everyone gains and there are no losers. 47. According to the law of demand, if the price of movie rentals decreases, ceteris paribus,: a. the demand for movie rentals would increase. b. the quantity demanded of movie rentals would decrease.c. the quantity demanded of movie rentals would increase. d. the demand for movie rentals would decrease. e. the quantity demanded of movie rentals would not change. 48. A soft-drink bottling company supplies six-packs of orange flavored soda to retailers for a price of $2 each. If the com six-pack costs the bottling company $1.50, the value added, to each six-pack, by the bottling company is: a. $2.00. b. $1.50. c. $1.25. d. $1.00. e. $0.50. The table given below reports the value of different economic variables of a country during a year. Table 5.4 GNP Data (Adjusted for net factor income from abroad) Net Investment $400 Capital Consumption Allowance $800 Indirect Business Taxes $600 U.S. Exports $200 U.S. Imports $300 Government Purchases $150 Consumption Spending $2,030 49. Refer to Table 5.4. Compute the GNP of the country. a. $2,680 b. $2,480 c. $3,280 d. $3,880 e. $4,48050. If the U.S. dollar price of the New Zealand dollar (NZD) is $0.5709, then the NZD price of one U.S. dollar will be: a. 1.5709 NZD. b. 1.75 NZD. c. 1.6711 NZD d. 0.5709 NZD. e. 1.75 NZD