Q1. Suppose the public expects a 4 percent inflationrate, while the Federal Reserve unexpectedly allows the money growth rate to be 5 percent. In the shortrun, we expect that

A.

real interest rates will increase.

B.

real interest rates will decrease.

C.

real interest rates may increase or decrease.

D.

real interest rates will remain constant.

Q2. If the demand for one good decreases when the price of another goodincreases, the two goods are________ goods.

A.

substitute

B.

inferior

C.

complementary

D.

normal

Q3. Recall the Application about the incentives to install rooftop solar panels to answer the following question.

According to theApplication, a 10 percent increase in the tax credits for solar panels results in an increase in the number of households that install solar panels by 7.6 percent. The increase in sales due to this subsidy is an example of which element of the economic way ofthinking?

A.

Isolating variables

B.

Responding to incentives

C.

Using assumptions to simplify

D.

Thinking at the margin

Q4. Using the rule of70, if the GDP per capita growth rate in the United States is 3.5percent, real GDP per capita doubles every

A.

20 years.

B.

24.5 years.

C.

35 years.

D.

70 years.

Q4. Suppose GDP________ the level of potential output. We would expect to see________ unemployment, risingwages, and rising prices.

A.

isbelow; low

B.

exceeds; high

C.

exceeds; low

D.

isbelow; high

Q5. Suppose GDP________ the level of potential output. We would expect to see________ unemployment, risingwages, and rising prices.

A.

isbelow; low

B.

exceeds; high

C.

exceeds; low

D.

isbelow; high

Q6. The law of demand can be explained as

A.

the higher theprice, the smaller the quantitydemanded, ceteris paribus.

B.

people are willing to make limited sacrifices to acquire products.

C.

a lot of people wanting the same thing.

D.

legal reasons people make purchases in the marketplace.

Q7. What are the two tools of fiscal policy that governments can use to affect the level of aggregatedemand?

A.

government spending and taxation

B.

taxation and controlling imports

C.

taxation and controlling exports

D.

government spending and technology improvements

Q8. Real business cycle theory emphasizes the role of

A.

technology shocks as a cause of economic fluctuations.

B.

demand shocks as a cause of economic fluctuations.

C.

government spending as a cause of economic fluctuations.

D.

shocks to the money supply as a cause of economic fluctuations.

Q9. The ability of one person or nation to produce a good at a lower absolute cost than another is calleda(n)

A.

specialization advantage.

B.

comparative advantage.

C.

absolute advantage.

D.

market advantage.

Q10. Checking account balances are included in

A.

M1 only.

B.

M2 only.

C.

both M1 and M2.

D.

neither M1 nor M2.

Q11. Which of the following is an example of an automaticstabilizer?

A.

Congress authorizes spending increases during a recession.

B.

Congress increases the tax rate during an expansion.

C.

More unemployment benefits are paid during a recession.

D.

Welfare payments decrease during a recession.

Q12. The increase in spending that occurs because the real value of money increases when the price level falls is known as the

A.

international trade effect.

B.

price effect.

C.

wealth effect.

D.

interest rate effect.

Q13. Jacinda quit her job as a blackjack dealer where she made$42,000 per year to start her own florist business. Her business expenses are$14,000 per year onrent, $21,000 per year onsupplies, and$9,000 per year on part time help. As for her personalexpenses, her apartment costs her$12,000 per year and her personal bills are an extra$6,000 per year. What isJacinda's opportunity cost of running thebusiness?

A.

$104,000

B.

$86,000

C.

$62,000

D.

$44,000

Q14. Saving time by driving faster is an example of a________ of driving faster. Increasing the severity of injuries from a potential accident due to driving faster isa(n) ________ of driving faster.

A.

marginalcost; nominal cost

B.

normativebenefit; opportunity cost

C.

marginalbenefit; marginal cost

D.

nominalcost; real cost

Q15. The Consumer Price Index(CPI) relies on the calculation of

A.

the components of GDP that do not change frequently.

B.

prices of a fixed basket of goods that does not change often.

C.

prices of a variable basket of goods that changes frequently.

D.

the components of GDP that change annually.

Q16. If an economy is producing a level of output which is higher than the equilibriumlevel, planned expenditures________ total output and________ goods and services are being produced than are being demanded.

A.

are lessthan; more

B.

exceed; more

C.

are lessthan; fewer

D.

exceed; fewer

Q17. The typical relationship between inflation and unemployment is

A.

as unemploymentfalls, inflation falls.

B.

as unemploymentfalls, inflation increases.

C.

unemployment changes do not directly lead to changes ininflation, but inflation changes may cause changes in unemployment.

D.

as unemploymentfalls, nothing happens to inflation.

Q18. Refer to Figure 9.2. A movement from point d to point c could be caused bya(n)

A.

increase in government spending.

B.

increase in the price of oil.

C.

increase in taxes.

D.

increase in shortrun aggregate supply.

Q19. The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

A.

transaction demand for money.

B.

liquidity demand for money.

C.

real demand for money.

D.

speculative demand for money.

Q20. Because PresidentTrump's tax cut in 2017 occurred when the economy was near fullemployment, economists were worried that the tax cut would potentially cause

A.

lower inflation.

B.

higher unemployment.

C.

lower unemployment.

D.

higher inflation.

Q21. Diminishing returns occurs because

A.

consumersdon't buy enough of the products produced.

B.

not enough people have jobs.

C.

two people have not satisfied their selfinterests.

D.

one of the inputs in the production process is fixed.

Q22. The existence of discouraged workers will lead to an official unemployment rate that is

A.

understated.

B.

overstated.

C.

either overstated or understated.

D.

unbiased.

Q23. Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question.

According to thisApplication, if you earn a salary of$40,000 in the first year and all prices triple in the nextyear, how will this affect the time it takes to pay off your schoolloans, assuming that you put all your earnings into paying itoff? Assume that your debt is$40,000.

A.

It will cut the payoff time to1/3 of the original time.

B.

It will triple your payoff time.

C.

It will cut the payoff time to2/3 of the original time.

D.

It will cut the payoff time to1/2 of the original time.

Q24. Deposits are examples of abank's

A.

net worth.

B.

assets.

C.

liabilities.

D.

balance sheet.

Q25. Economics is the study of

A.

how government officials decide which goods and services are produced.

B.

the role of money in markets.

C.

how to invest in the stock market.

D.

how society uses limited resources.

Q26. Transfer payments are excluded from government purchases in GDP accounting because

A.

nothing is being produced in return for the payment.

B.

they are a reward to individuals who have been productive their entire lives.

C.

they are difficult to measure.

D.

they are already included as part of investment

Q27. The economy needs some unemployment to operateefficiently, because without it

A.

workers will find it difficult to find ajob, leading to reduced wages and prices.

B.

firms will find it difficult to recruitworkers, leading to increased wages and prices.

C.

firms will find it difficult to recruitworkers, leading to reduced wages and prices.

D.

workers will find it difficult to find ajob, leading to increased wages and prices.

Q28. The group responsible for making decisions regarding monetary policy is the

A.

Federal Advisory Council.

B.

group of 12 Federal Reserve Bank presidents only.

C.

Federal Open Market Committee.

D.

Board of Governors only.

Q29. The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as

A.

Keynesian economics.

B.

real business cycle theory.

C.

technology shock theory.

D.

investment cycle theory.

Q30. The GDP equation is

A.

Y= C I G NX.

B.

Y= C+ I+ G+ NX.

C.

C+ I= Y+ G+ NX.

D.

C+ I= G+ NX.