1:The basic economic function of the household sector is:

(A)undertaking consumption.

(B)undertaking production.

(C)exchanging goods.

(D)exchanging resources.

(E)regulating business activity.

2:The duty of the ___________ sector is to impose allocation decisions on the economy that would not otherwise be made.

(A)household

(B)business

(C)government

(D)foreign

(E)export

3:The domestic economy includes:

(A)only the household and business sectors.

(B)only the government sector.

(C)only the foreign sector.

(D)the household, business, and government sectors.

(E)the household, business, government, and foreign sectors.

4:The division of economics between macroeconomics and microeconomics can be traced to the:

(A)American Revolution of 1776.

(B)Great Depression of the 1930s

(C)Reagan Revolution of the 1980s.

(D)start of this class in 1998.

(E)turn of the century in the year 2000.

5:In the U.S. economy, gross domestic product, GDP, is currently about:

(A)$8,000.

(B)$8,000,000.

(C)$8 million.

(D)$8 billion.

(E)$8 trillion.

6:If inflation and fluctuations of economic activity are avoided, then the economy is better achieving the goal of:

(A)full employment.

(B)stability.

(C)growth.

(D)efficiency.

(E)equity.

7:A key problem resulting from inflation is:

(A)prices are stable.

(B)certainty of future prices.

(C)a haphazard redistribution of income.

(D)an increase in the value of money.

(E)barter exchanges are unnecessary.

8:A business cycle contraction tends to cause:

(A)high or rising inflation.

(B)high or rising unemployment.

(C)neither unemployment nor inflation.

(D)low or falling unemployment and inflation.

(E)high or rising unemployment and inflation.

9:A business cycle contraction can result from a(n):

(A)increase in consumption.

(B)increase in investment.

(C)increase in taxes.

(D)increase in money.

(E)increase in exports.

10:Conservative Republicans would tend to favor:

(A)fiscal policy over monetary policy.

(B)fiscal policy over do nothing policy.

(C)fiscal policy over anything.

(D)monetary policy over fiscal policy.

(E)monetary policy over do nothing policy.

Chapter # 02

1:The basic principles of Keynesian economics were presented in the book:

(A)"Treatise on Political Economy."

(B)"The New Industrial State."

(C)"Studies in the Quantity Theory of Money."

(D)"The General Theory of Employment, Interest and Money."

(E)"An Inquiry into the Nature and Causes of the Wealth of Nations."

2:Keynesian economics was largely developed to address the economic problems of the:

(A)bank panic of 1907.

(B)stagflation of the 1970s.

(C)Great Depression of the 1930s.

(D)English industrial revolution of the late 1700s.

(E)American industrial revolution of the late 1800s.

3:Keynesian economics was the predominant economic theory:

(A)prior to the late 1700s.

(B)from the late 1700s to the early 1900s.

(C)from the 1930s to the 1970s.

(D)since the 1970s.

(E)at no time in the history of western civilization.

4:According to Keynesian economics, inflexible wages and prices:

(A)cause the aggregate product market to always remain in equilibrium.

(B)cause real production and employment to fall when aggregate expenditures decline.

(C)cause real production and employment to remain at their full employment levels.

(D)fall in the early stages of a recession, when aggregate expenditures decline.

(E)rise in the early stages of a recession, when aggregate expenditures increase.

5:Keynesian economics rejected the classical assumption that:

(A)supply creates its own demand.

(B)prices and wages are inflexible.

(C)self-correction takes a long time.

(D)consumption expenditures depend on disposable income.

(E)equilibrium can be achieved below full employment.

6:Keynesian economics rejected the classical assumption that:

(A)demand creates its own supply.

(B)prices and wages are inflexible.

(C)self-correction takes a long time.

(D)consumption expenditures depend on disposable income.

(E)equilibrium always remains at full employment.

7:According to Keynesian economics, the primary reason for business-cycle instability is changes in:

(A)the quantity of resources.

(B)the quality of resources.

(C)government purchases.

(D)investment expenditures.

(E)consumption expenditures.

8:A central proposition of Keynesian economics is:

(A)the consumption function.

(B)the equation of exchange.

(C)rational expectations.

(D)flexible wages and prices.

(E)supply creates its own demand.

9:A primary implication of Keynesian economics is:

(A)the best government is the least government.

(B)flexible wages and prices ensure full employment.

(C)monetary policy is far superior to fiscal policy.

(D)self-correction is the best way to eliminate unemployment.

(E)business-cycle instability is best corrected through government policies.

10:During periods of high unemployment, the preferred policy of Keynesian economics is:

(A)a recessionary gap.

(B)expansionary fiscal policy.

(C)contractionary monetary policy.

(D)waiting for self-correction to work.

(E)high tariffs and other foreign trade barriers.

Chapter # 03:

1:The critical function that separates a financial intermediary from other types of businesses is that it:

(A)generates tax revenue for government spending.

(B)facilitates the exchange of retail goods.

(C)enables the exchange of corporate stock.

(D)provides insurance to car owners.

(E)diverts household saving to business investment.

2:To remain in business, modern commercial banks have to balance:

(A)radial tires and justice.

(B)comedy and tragedy.

(C)interest-paying loans and stability-ensuring reserves.

(D)conservative and liberal political philosophies.

(E)academic coursework and collegiate athletics.

3:A __________ is financial intermediary chartered by the Comptroller of the Currency.

(A)traditional bank

(B)stock broker

(C)savings and loan association

(D)credit union

(E)mutual savings bank

4:Examples of bank assets are:

(A)loans from the Federal Reserve.

(B)loans from another commercial bank.

(C)checkable deposit accounts held by customers.

(D)certificates of deposit held by customers.

(E)reserves deposited with the Federal Reserve.

5:An asset that banks might use as a buffer between loans and reserves, that pays more interest than reserves, but provides more liquidity than loans is:

(A)vault cash.

(B)loans to another commercial bank.

(C)reserves deposited with the Federal Reserve.

(D)home mortgage loans to customers.

(E)buildings and capital equipment.

6:The amount of vault cash and deposits with the Federal Reserve System that a bank has over what it must legally keep to back deposits are best termed:

(A)legal reserves.

(B)required reserves.

(C)excess reserves.

(D)marginal reserves.

(E)federal reserves.

7:Assume that a bank has $100,000 in checkable deposits and $20,000 in excess reserves. If the required-reserve ratio is 10 percent, legal reserves are:

(A)$0.

(B)$10,000.

(C)$20,000.

(D)$30,000.

(E)$40,000.

8:When Bill the Knight asks Fred the Goldsmith to hold onto some of his gold while he's fighting dragons in another kingdom, Fred has employed the basic banking function of:

(A)making loans.

(B)commodity money.

(C)fractional-reserve banking.

(D)maintaining deposits.

(E)money creation.

9:If Fred the Goldsmith realizes that he only needs to keep 10 pounds of gold to back up 100 pounds of gold deposits, Fred has employed the basic banking function of:

(A)making loans.

(B)commodity money.

(C)fractional-reserve banking.

(D)safekeeping.

(E)money creation.

10:The government regulator primarily concerned with insuring bank deposits is the:

(A)Federal Reserve System.

(B)Department of the Treasury.

(C)Comptroller of the Currency.

(D)Bureau of the Mint.

(E)Federal Deposit Insurance Corporation.

Chapter # 04:

1:The aggregate market is the sum of circular flow transactions through the:

(A)foreign exchange markets.

(B)factor markets.

(C)financial markets.

(D)product markets.

(E)resource markets.

2:The purchase of furniture would fall into the __________ category of consumption expenditures.

(A)services

(B)durable goods

(C)nondurable goods

(D)investment

(E)transfer payment

3:An investment expenditure falling into the equipment category is a(n):

(A)shopping mall.

(B)apartment building.

(C)residential house.

(D)half-finished car.

(E)delivery vehicle.

4:Economists prefer measuring the economy's average price using the:

(A)consumer price index.

(B)GDP price deflator.

(C)urban market index.

(D)real GDP.

(E)nominal GDP.

5:The difference between aggregate demand and aggregate expenditures is much like the difference between:

(A)price and quantity.

(B)government purchases and transfer payments.

(C)consumption and investment.

(D)demand and quantity demanded.

(E)imports and net exports

6:The GDP price deflator is to real GDP as:

(A)demand is to quantity demanded.

(B)government purchases is to transfer payments.

(C)consumption is to investment.

(D)imports is to net exports

(E)price is to quantity.

7:A decline in aggregate expenditures that occurs because a rise in the price level also increases the interest rate is called the:

(A)real-GDP effect.

(B)real-balance effect.

(C)aggregate-demand effect.

(D)income-price effect.

(E)interest-rate effect.

8:A decrease in consumption and a leftward shift of the AD curve is most likely caused by:

(A)an increase in interest rates.

(B)a decrease in physical wealth.

(C)an increase in financial wealth.

(D)expectations of rising inflation.

(E)a decrease in taxes.

9:The currency exchange rate is most likely to change and cause a shift of the aggregate demand curve through a change in:

(A)consumption.

(B)investment.

(C)net exports.

(D)transfer payments.

(E)taxes.

10:Demand-management policies are designed to shift the:

(A)AD curve.(c) ..............................

(B)AS curve.