multiple choice Questions

Question 2. 2. Commodities that typically last three years or more are called ________.

durable goods

nondurable goods

services

None of these answers is correct.

Question 3. 3. The decrease in consumption and investment interest-related spending that occurs when the interest rate rises as government spending increases is called ________. (Points : 3)

crowding in

crowding out

neutral

None of these answers is correct.

Question 4. 4. Industrial production is an example of a ________. (Points : 3)

leading indicator

coincident indicator

lagging indicator

None of these answers is correct.

Question 5. 5. Expansionary monetary policy should be used if ________. (Points : 3)

aggregate demand-aggregate supply equilibrium is below potential output

aggregate demand-aggregate supply equilibrium is above potential output

aggregate demand-aggregate supply equilibrium is equal to potential output

None of these answers is correct.

Question 6. 6. An increase in production costs will shift the ________. (Points : 3)

aggregate demand curve

short-run aggregate supply curve

long-run aggregate supply curve

None of these answers is correct.

Question 7. 7. Spending on the structures, equipment, and software that provide the industrial capacity to produce goods and services for all sectors of the economy is called ________. (Points : 3)

inventory investment

business fixed investment

residential fixed investment

consumption

Question 8. 8. At a given price level, an increase in expected profits and business confidence will shift the aggregate demand curve ________. (Points : 3)

rightward

leftward

both

None of these answers is correct.

Question 9. 9. During the recession of 2007-2009, the U.S. economy was experiencing a decrease in home prices and consumer wealth, a credit crisis in the financial markets, and declining consumer and business confidence. What components of aggregate demand were affected and what was the impact on real output? What were the policy options? (Points : 3)

Question 10. 10. An open market purchase of government securities by the Fed would shift the aggregate demand curve leftward. (Points : 3)

True

False

Question 11. 11. An appreciation of the U.S. dollar would shift the ________. (Points : 3)

aggregate demand curve rightward

aggregate demand curve leftward

aggregate supply curve rightward

aggregate supply curve leftward

Question 12. 12. An increase in the costs of resources or inputs of production would shift the ________. (Points : 3)

short-run aggregate supply curve rightward

short-run aggregate supply curve leftward

long-run aggregate supply curve rightward

long-run aggregate supply curve leftward

Question 13. 13. Policies adopted by a country's central bank that influence interest rates and credit conditions, which in turn influence consumer and business spending, are called ________. (Points : 3)

monetary policy

fiscal policy

foreign policy

exchange rate policy

Question 14. 14. Changes in taxes and spending by the executive and legislative branches of a country's government that can be used to either stimulate or restrain the economy are called ________. (Points : 3)

monetary policy

fiscal policy

foreign policy

exchange rate policy

Question 15. 15. In the long-run, an increase in the budget deficit and an expansionary monetary policy would ________. (Points : 3)

increase the price level only

increase both the price level and real income

increase real income only

None of these answers is correct.

Question 16. 16. The fraction of deposits banks are required to keep as reserves is called the ________. (Points : 3)

deposit requirement

reserve requirement

excess reserve requirement

None of these answers is correct.

Question 17. 17. Describe the fractional reserve banking system. (Points : 3)

Question 18. 18. The interest rate that banks charge on loans to their best customers is called the ________. (Points : 3)

federal funds rate

discount rate

mortgage interest rate

prime rate

Question 19. 19. An increase in the real money supply can result from ________. (Points : 3)

an increase in the nominal money supply or an increase in the price level

an increase in the nominal money supply or a decrease in the price level

a decrease in the nominal money supply or an increase in the price level

a decrease in the nominal money supply or a decrease in the price level

Question 20. 20. What are the three monetary policy tools of the Fed? Briefly describe how each tool can be used to implement an expansionary monetary policy and a contractionary monetary policy. (Points : 3)

Question 21. 21. According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following? (Points : 3)

An increase in the unemployment rate to 3.4%

A decrease in the unemployment rate to 3.0%

A decrease in the demand for labor in the economy

A return to the original inflation rate of 1.3%

Question 22. 22. If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not? (Points : 3)

Question 23. 23. By definition, the purchasing power of money always drops when ________. (Points : 3)

inflation occurs

deflation occurs

the economy is experiencing full employment

it is a presidential election year

Question 24. 24. If the nominal interest rate is 9 percent and the anticipated inflation rate is 4 percent, then the real interest rate is ________. (Points : 3)

5 percent

13 percent

- 5 percent

2.25 percent

Question 25. 25. What are the costs associated with inflation? (Points : 3)

Question 26. 26. The producer price index measures ________. (Points : 3)

the prices consumers pay for final goods and services

the prices firms pay for crude and intermediate materials as well as finished goods

the prices the government pays for final goods and services

None of these answers is correct.

Question 27. 27. The producer price index focuses on price changes of domestically produced goods and includes services, construction, and imported goods. (Points : 3)

True

False

Question 28. 28. Assume that the current price of a market basket of goods is $2,500 and the base year price of the same market basket is $1,340. The price index is ________. (Points : 3)

53.6

40.0

138.3

186.6

Question 29. 29. Which of the following price indices is designed to measure changes in the prices of goods and services purchased by a typical individual? (Points : 3)

Producer Price Index

Gross Domestic Product (GDP) Deflator

Index of Leading Economic Indicators

Consumer Price Index

Question 30. 30. In 2013, the price for a market basket of consumer goods is $800. In the base year, the cost of the identical market basket was $1,000. The price index in this case is ________. (Points : 3)

80.0

130.0

800.0

180.0

Question 31. 31. In January 2001, the euro/dollar exchange rate was 1.10, and in January 2002, the euro/dollar exchange rate was 1.120. What happened to the exchange rate during this period? (Points : 3)

The euro appreciated against the dollar.

The euro depreciated against the dollar.

The dollar appreciated against the euro.

The euro depreciated against the dollar and the dollar appreciated against the euro.

Question 32. 32. In the foreign exchange market, the quantity of U.S. dollars demanded is a function of ________. (Points : 3)

the amount of imports and the level of capital outflows

the amount of exports and the level of capital outflows

the amount of exports and the level of capital inflows

None of these answers is correct.

Question 33. 33. A decrease in the supply of dollars on the foreign exchange market, all else equal, will result in ________. (Points : 3)

appreciation of the U.S. dollar and depreciation of the foreign currency

appreciation of the U.S. dollar and appreciation of the foreign currency

depreciation of the U.S. dollar and depreciation of the foreign currency

depreciation of the U.S. dollar and appreciation of the foreign currency

Question 34. 34. In 2003, China's control of the value of the yuan became an economic and political issue for the U.S. because of ________. (Points : 3)

increased U.S. exports to China

decreased U.S. exports to China

increased China imports from the U.S.

None of these answers is correct.

Question 35. 35. Using the foreign exchange market diagram, graphically illustrate and explain the impact of an increase in U.S. income, all else constant, on the exchange rate. (Points : 3)

Question 36. 36. Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that ________. (Points : 3)

China also has an absolute advantage in producing corn relative to Japan

China has a lower opportunity cost of producing corn relative to Japan

Japan has an absolute disadvantage in producing corn relative to China

Labor costs are higher for corn producers in Japan than in China

Question 37. 37. If Japanese workers are more productive than French workers, then trade between Japan and France ________. (Points : 3)

can take place only if France has an absolute advantage in producing a good or service Japanese buyers want

cannot take place because Japanese goods and services will be less expensive than French goods and services

cannot take place until French workers become more productive

will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want

Question 38. 38. If Canada has a comparative advantage relative to Mexico in the production of timber, then ________. (Points : 3)

the explicit cost of production for timber is lower in Canada than in Mexico

the opportunity cost of production for timber is lower in Canada than in Mexico

the implicit costs of production for timber are lower in Canada than in Mexico

the average cost of production for timber is lower in Canada than in Mexico

Question 39. 39. What are the four main sources of comparative advantage? Briefly explain each source and provide examples. (Points : 3)

Question 40. 40. The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage. In reality, we do not see complete specialization in production. State three reasons why this is case. (Points : 3)

Question 41. 41. Figure 7-1

Figure 7-1 shows the U.S. demand and supply for leather footwear.

Refer to Figure 7-1. Under autarky, the consumer surplus is ________ and the producer surplus is ________. (Points : 3)

$195; $105

$300; $285

$260; $40

$555; $105

Question 42. 42. Refer to Figure 7-1. Under autarky, the deadweight loss is ________. (Points : 3)

$0

$15

$30

$40

Question 43. 43. Which of the following is not an example of a trade restriction? (Points : 3)

Tariffs

Quotas and voluntary export restraints

Legislation requiring that cars sold in a country have a 50 percent domestic content

Consumer preferences for goods produced domestically

Question 44. 44. The main purpose of most tariffs and quotas is to ________. (Points : 3)

raise revenue for the government

reduce the prices consumers pay for goods and services

reduce the foreign competition that domestic firms face

improve the quality of goods and services imported into the country

Question 45. 45. Distinguish between a voluntary export restraint and a quota. (Points : 3)

Question 46. 46. The amount of cost-cutting technical innovation introduced into a production process is a function of ________. (Points : 3)

technology only

technology and consumer acceptance

consumer acceptance only

None of these answers is correct.

Question 47. 47. Increases in both labor and capital productivity will result in ________. (Points : 3)

downward shifts of the average and marginal product curves and upward shifts of the average cost curves

downward shifts of the average and marginal product curves and downward shifts of the average cost curves

upward shifts of the average and marginal product curves and downward shifts of the average cost curves

upward shifts of the average and marginal product curves and upward shifts of the average cost curves

Question 48. 48. As McDonald's expanded globally, it was able to achieve ________.

economies of scope

economies of scale

diseconomies of scale

None of these answers is correct.

Question 49. 49. Managers in firms with market power can ________.

not influence price

develop strategies that involve both the demand and the supply sides of the market

only focus on the demand side of the market

None of these answers is correct.

Question 50. 50. If a good is price elastic, a decrease in its price will ________.

decrease total revenue

increase total revenue

not affect revenue

None of these answers is correct.