Each question should be well explained

13. Which of the following would represent an injection into the circular flow of income and AS 3 expenditure? PRICE LEVEL (A) Investment spending AS (B) Income tax C) Tariffs (D) Savings (E) Imports 14. Which of the following would most likely lead REAL OUTPUT to a decrease in aggregate demand? 10. The diagram above shows aggregate supply (A) A decrease in taxes curves AS,, AS2, and AS;. Which of the (B) A decrease in interest rates following statements is true? (C) An increase in household savings (A) AS, reflects wage and price rigidity. (D) An increase in household consumption (B) AS, reflects greater wage and price (E) An increase in business firms' purchases of flexibility than AS2- capital equipment from retained earnings (C) AS, reflects greater wage and price flexibility than AS, and AS3- (D) The shift from AS, to AS, is due to a decrease in nominal wages. PRICE LEVEL (E) The shift from AS, to AS, is due to an increase in oil prices. PL 1 1. An increase in which of the following would PL cause the long-run aggregate supply curve to shift to the right? (A) Corporate income tax rates (B) Aggregate demand (C) Labor productivity (D) The average wage rate 15. The diagram above shows the aggregate (E) The price level demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) 12. As income level increases from $500 to $1,000, curves for an economy. An increase in which of consumption increases from $700 to $1,100. the following will shift the aggregate demand The marginal propensity to consume is equal to curve from AD to AD'? (A) 1.10 (A) Money supply (B) 0.80 (B) Income tax rates (C) 0.70 (C) Government purchases (D) 0.50 D) Transfer payments (E) 0.10 (E) Net exports 10 PRINCIPLES OF MACROECONOMICS 16. If the Federal Reserve lowers reserve 20. Assume that the reserve requirement is requirements, which of the following is most 25 percent. If banks have excess reserves likely to happen to interest rates and nominal of $10,000, which of the following is the gross domestic product? maximum amount of additional money that Nominal Gross can be created by the banking system through Interest Rates Domestic Product the lending process? (A) Increase Decrease (A) $ 2,500 (B) Increase Increase (B) $ 10,000 C) Decrease Decrease (C) $ 40,000 (D) Decrease Increase (D) $ 50,000 (E) No change No change (E) $250,000 17. If the marginal propensity to consume is 21. An increase in which of the following will most 0.9, what is the maximum amount that the likely reduce the federal government's budget equilibrium gross domestic product could deficit? change if government expenditures increase by $1 billion? (A) Interest rates (B) Income tax rates (A) It could decrease by $9 billion. (B) It could increase by $0.9 billion. (C) Defense spending (C) It could increase by $1 billion. (D) Government transfer payments (D) It could increase by $9 billion. (E) Tax credits for investment spendingincreases the reserve requirement 23. To counteract a recession, the Federal Reserve could 19. Which of the following would increase the value of the simple spending multiplier? (A) buy government securities on the open market and raise the reserve requirement (A) An increase in government expenditure (B) buy government securities on the open (B) An increase in exports market and lower the reserve requirement (C) A decrease in government unemployment (C) buy government securities on the open benefits market and raise the discount rate (D) A decrease in the marginal propensity (D) sell government securities on the open to consume market and raise the discount rate (E) A decrease in the marginal propensity (E) raise the reserve requirement and lower the to save discount rate 11 PRINCIPLES OF MACROECONOMICS 24. Total spending in the economy is most likely to 27. Which of the following policies would most increase by the largest amount if which of the likely be recommended in an economy with following occur to government spending an annual inflation rate of 3 percent and an and taxes? unemployment rate of 11 percent? Government Spending Taxes (A) An increase in transfer payments and an (A) Decrease Increase increase in the reserve requirement (B) Decrease No change (B) An increase in defense spending and an C) Increase Increase increase in the discount rate (D) Increase Decrease (C) An increase in income tax rates and a decrease in the reserve requirement (E) No change Increase (D) A decrease in government spending and the open market sale of government securities 25. An expansionary monetary policy will be most (E) A decrease in the tax rate on corporate effective in increasing real output if profits and a decrease in the discount rate (A) investment spending is sensitive to changes in interest rates 28. Assume the velocity of money and real gross (B) money demand is sensitive to changes in domestic product are constant. According to the interest rates quantity theory of money, an increase in the (C) wages and prices are perfectly flexible money supply will result in which of the following? (D) corporate income tax rates increase (E) complete crowding-out occurs (A) A decrease in the price level (B) A decrease in the money multiplier 26. Supply-side economists argue that (C) A decrease in nominal gross domestic product (A) a cut in high tax rates results in an increased (D) An increase in the price level deficit and thus increases aggregate supply (E) An increase in the money multiplier (B) lower tax rates provide positive work incentives and thus shift the aggregate supply curve to the right 29. An expansionary fiscal policy would most likely (C) the aggregate supply of goods can only be cause which of the following changes in output increased if the price level falls and interest rates? (D) increased government spending should be Output Interest Rates used to stimulate the economy (A) Increase Increase (E) the government should regulate the supply (B) Increase Decrease of imports (C) Decrease Increase (D) Decrease Decrease (E) No change Decrease49. If the Federal Reserve suddenly increases the 52. If the required reserve ratio is 0.20 and the growth rate of the money supply from 4 percent Federal Reserve buys $200 worth of securities, to 8 percent per year, interest rates, aggregate the maximum increase in the money supply demand, and nominal gross domestic product will be (GDP) will most likely change in which of the following ways in the short run? (A) $ 200 (B) $ 400 Interest Aggregate Nominal (C) $ 600 Rates Demand GDF (D) $ 800 (A) Increase Increase Increase (E) $1,000 (B) Increase Decrease Increase C) Decrease Increase Increase Assets Liabilities (D) Decrease Increase Decrease (E) Decrease Decrease Reserves $4,000 Demand deposits $10,000 Increase Loans $6,000 50. The United States federal government budget 53. The table above shows the T-account entries of deficits tend to be large when which of the a bank. If the required reserve ratio is 0.20, following is low? what is the maximum amount of additional loans that this bank can make from its current (A) The interest rate on government bonds reserves? (B) The growth rate of the economy (A) $ (C) The unemployment rate (B) $ 2,000 (D) The inflation rate C) $ 2,500 (E) The international value of the United D) $ 4,000 States dollar (E) $10,000 51. Using the same amount of resources, Betaland can produce 80 tons of corn or 80 tons of wheat 54. Which of the following explains why the aggregate demand curve is downward sloping? and Alphaland can produce 40 tons of corn or 20 tons of wheat. Which of the following (A) Sticky wages statements is true? (B) Money illusion (A) The opportunity cost of producing a ton of C) The Fisher effect corn in Betaland is two tons of wheat. (D) The wealth effect (B) The opportunity cost of producing a ton of (E) Speculative demand for money corn in Betaland is a ton of wheat. (C) The opportunity cost of producing a ton of corn in Alphaland is two tons of wheat. (D) Betaland has both the absolute and comparative advantage in producing corn. (E) Alphaland has the comparative advantage in producing wheat.55. According to the short-run Phillips curve, which | 58. To raise its long-run rate of economic growth, a of the following will occur when the Federal country should design and implement policies Reserve increases the money supply? that do which of the following? (A) Both the unemployment rate and the (A) Encourage current consumption over saving inflation rate will increase. B) Encourage saving and investment (B) Both the unemployment rate and the (C) Increase the price level and profits inflation rate will decrease (D) Increase government transfer payments (C) The unemployment rate will increase, (E) Limit business activities to protect the and the inflation rate will decrease. environment "D) The unemployment rate will decrease, and the inflation rate will increase. 59. With a constant money supply, an increase in (E) The inflation rate will increase, but the the demand for money will affect interest rates unemployment rate will remain constant. and bond prices in which of the following ways? Interest Rates Bond Prices 56. Which of the following is true if there is a current account deficit in the United States (A) Increase Increase balance-of-payments accounts? (B) Increase Decrease C) Increase Not change (A) There is a corresponding deficit in the (D) Decrease Increase financial account. (E) Not change Increase (B) There is a corresponding surplus in the financial account. (C) There is an offsetting surplus in the 60. According to the quantity theory of money, an government's budget. increase in the money supply results in an increase in which of the following' (D) There is an offsetting increase in net exports. (A) Interest rate (E) The United States dollar appreciates in the (B) Unemployment foreign exchange market. (C) Nominal gross domestic product (D) The government's budget deficit 57. An increase in national saving will cause the real (E) The value of the dollar on the foreign interest rate and investment spending to change exchange market in which of the following ways? Real Interest Rate Investment 61. Which of the following policies will most likely lead to a reduction in the natural rate (A) Increase Increase of unemployment? (B) Increase Decrease (C) Increase Not change (A) Increasing government purchases of goods and services (D) Decrease Increase (B) Providing more job-training programs to (E) Decrease Not change help the less skilled (C) Increasing the duration of unemployment compensation (D) Raising the minimum wage (E) Increasing the money supply62. Assume that an economy produces only two 65. Which of the following is true of the long-run goods, computers and gasoline. The quantity Phillips curve? and price of each are given in the table below. (A) It shows the trade-off between the price Price of Quantity of Price of Quantity of level and the money supply. Year Computers Computers Gasoline Gasoline (in millions) (in millions) (B) It shows that lower unemployment can be gained only at the expense of higher 2000 $1,000 $1 500 inflation. 2004 $500 10 $2 250 (C) It shows that unemployment is a monetary issue. (D) It is vertical at the natural rate of If the base year is 2000, how do nominal and unemployment. real gross domestic product (GDP) change (E) It is U-shaped over all possible ranges between 2000 and 2004? of unemployment. Nominal GDP Real GDP (A) No change Increase 66. Economics is best defined as the study of how (B) No change Decrease (A) markets allocate resources efficiently (C) Increase No change (B) businesses make investments to maximize (D) Increase Increase profits (E) Increase Decrease (C) public goods and services are produced (D) society chooses to allocate its scarce 63. Assuming that the expected inflation rate is resources stable, an increase in interest rates will lead to (E) the invisible hand of the market works (A) an increase in bond prices 67. Human capital refers to which of the following? (B) an increase in the demand for money as an asset (A) The acquisition of plant and equipment by (C) an increase in aggregate demand workers (D) a decrease in private investment (B) The amount of financial investment made by individuals (E) a decrease in capital inflows (C) The labor force requirement for sustained economic growth 64. An increase in income tax rates with no change (D) The education and experience of the labor in government spending will result in which of force the following? (E) The technology available to individual (A) A decrease in private savings workers B) An increase in private savings (C) An increase in the real interest rate 68. Which of the following will lower inflationary expectations? (D) An increase in the demand for loanable funds (A) The government's announcement that it will (E) An increase in the budget deficit increase spending on infrastructure (B) The Federal Reserve's announcement that it will steadily raise the federal funds rate C) An increase in the value of stocks D) An increase in consumer and business optimism (E) An increase in the money supply76. Which of the following would cause a country's 79. If a country's consumer price index was 200 last production possibilities curve to shift outward? year and is 190 this year, which of the following (A) A decrease in the unemployment rate must be true for the country from last year to this year? (B) A technological advance (C) An increase in government transfer (A) The quantity of goods produced has payments decreased. (D) A reallocation of economic resources (B) The average quality of the goods produced (E) A decline in population has increased. (C) The inflation rate has increased by 5 percent. 77. Which of the following is true about economic (D) The price level has decreased by 5 percent. growth? E) The unemployment rate has decreased by 5 percent. (A) It occurs in big countries more often than it does in small countries. (B) It occurs more often in countries with closed 80. The national debt of the United States is the economies than in those with open (A) accumulated government spending, less the economies. interest paid on bonds C) It is positively related to a country's investment in human capital. (B) accumulation of all past government deficits (D) It is negatively related to a country's capital (C) difference between government tax revenues stock. and government spending during a fiscal year (E) It is negatively related to a country's standard of living. (D) money owed to the Federal Reserve for reimbursement of domestic bondholders (E) annual amount borrowed by local, state, and 78. The MI measure of the money supply primarily federal governments to provide public goods consists of which of the following? to all citizens (A) Checking accounts and credit cards (B) Noncheckable savings and credit cards 81. Gross domestic product is defined as which of (C) Currency in circulation and checkable bank the following? deposits (D) Noncheckable savings and (A) The total amount of output produced by small-denomination time deposits an economy in a given time period (E) Savings bonds and savings accounts (B) The total market value of all output produced by an economy in a given time period (C) The total market value of all final goods and services produced by an economy in a given time period (D) The total value of all final goods and services sold in the domestic market in a given time period (E) The total market value of all final goods and services produced by an economy minus the market value of final goods and services exported to other nations in a given time period 2082. If central banks in Asia reduce the supply of 84. Jamal lost his computer programming job when their own currencies on the foreign-exchange it was outsourced to a company abroad. After market relative to the United States dollar, which looking unsuccessfully for several months of the following will occur? for another job, he gave up and is currently attending school. Currently Jamal is classified as (A) Asian currencies will depreciate. (B) The United States dollar will appreciate. (A) structurally unemployed (C) Asian goods will be more expensive for (B) frictionally unemployed United States consumers. (C) cyclically unemployed (D) United States goods will be more expensive (D) underemployed for Asian consumers. (E) not in the labor force (E) United States private investment in Asia will increase. 85. Which of the following will decrease gross domestic product by the greatest amount? 83. Which of the following policy actions could the Federal Reserve use to combat inflation? (A) $20 billion increases in both government spending and taxes (A) Selling government bonds to reduce the (B) $20 billion decreases in both government money supply spending and taxes (B) Buying government bonds to reduce the (C) A $20 billion increase in taxes amount of loanable funds (D) A $20 billion decrease in government (C) Raising taxes to reduce the interest rate spending (D) Cutting the reserve requirement to reduce (E) A $20 billion increase in net exports the amount of excess reserves held by banks (E) Cutting the discount rate to decrease the availability of loans to banks