1
In considering the net effect of expansionary fiscal policy on the trade deficit, the
•
income effect offsets the price effect
•
price effect offsets the income effect
•
income and price effects work in the same direction, so the trade deficit is increased
•
income and price effects work in the same direction, so the trade deficit is decreased
2
In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because
•
the domestic currency will appreciate
•
the country eventually will sell all its financial assets to foreigners
•
the country eventually has to produce more than it consumes in order to pay foreigners their profits
•
the country eventually will consume more and produce less
3
The laissez-faire policy prescription to eliminate unemployment was to
•
strengthen unions and government regulations protecting unions and workers
•
eliminate labor unions and government policies that hold real wages too high
•
have government guarantee jobs for everyone
•
increase real wages so that people are encouraged to work
4
When a country runs a trade deficit, it does so by:
•
lending to foreign countries or buying assets from them.
•
lending to foreign countries or selling assets to them.
•
borrowing from foreign countries or selling assets to them.
•
borrowing from foreign countries or buying assets from them
5
Real gross domestic product is best defined as
•
the market value of intermediate goods and services produced in an economy, including exports
•
all goods and services produced in an economy, stated in the prices of a given year and multiplied by quantity
•
the market value of all final goods and services produced in an economy, stated in the prices of a given year
•
the market value of goods and services produced in an economy, stated in current-year prices
6
Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?
•
An increase in government spending
•
A reduction in government spending
•
An increase in taxes
•
No change in taxes or government spending
7
The market where business sell goods and services to households and the government is called the
•
money market
•
capital market
•
goods market
•
factor market
8
If the Federal Reserve increases the required reserves, financial institutions will likely lend out
•
more than before, increasing the money supply
•
more than before, decreasing the money supply
•
less than before, decreasing the money supply
•
less than before, increasing the money supply
9
Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2700 the Federal Reserve should
•
raise the discount rate by 3 percentage points
•
raise the discount rate by 10 percentage points
•
reduce the discount rate by 10 percentage points
•
reduce the discount rate by 3 percentage points
10
Expansionary fiscal policy tends to
•
raise U.S. income, increase U.S. imports, and lower the trade deficit
•
lower U.S. income, reduce U.S. imports, and increase the trade deficit
•
raise U.S. income, increase U.S. imports, and increase the trade deficit
•
lower U.S. income, reduce U.S. imports, and lower the trade deficit
11
If U.S. interest rates fall relative to Japanese interest rates and Japanese inflation falls relative to U.S. inflation, then the
•
change in the dollar's value cannot be determined
•
dollar will gain value in terms of yen
•
dollar's value will not change in terms of yen
•
dollar will lose value in terms of
12
Considering an economy with a current trade deficit and considering only the direct effect on income, an expansionary monetary policy tends to
•
decrease the exchange rate and decrease the trade deficit
•
increase the exchange rate and decrease the trade deficit
•
decrease the exchange rate and increase the trade deficit
•
increase the exchange rate and increase the trade deficit
13
Aggregate demand management policies are designed most directly to
•
minimize unemployment
•
control the aggregate level of spending in the economy
•
prevent budget deficits or surpluses
•
minimize inflation
14
The Federal Reserve provides which of the following data?
•
Bond yields of corporations
•
Federal funds rate
•
Stock price of GE
•
Debt to GDP of Ireland
15
What tool of monetary policy will the Federal Reserve use to increase the federal funds rate from 1% to 1.25%?
•
A change in reserve requirements
•
The discount rate
•
Margin requirements
•
Open-market operations
16
If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent. This policy would most likely
•
increase the money multiplier but decrease the money supply
•
increase both the money multiplier and the money supply
•
decrease the money multiplier but increase the money supply
•
decrease both the money multiplier and the money supply
17
A country can have a trade deficit as long as it can
•
produce more than it consumes
•
purchase foreign assets
•
borrow from or sell assets to foreigners
•
make loans to other countries
18
The largest source of household income in the U.S. is obtained from
•
interest earnings
•
rental income
•
wages and salaries
•
stock dividends
19
If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will
•
shift right by less than 20
•
shift right by exactly 20
•
shift right by more than 20
•
not shift at all
20
The U.S. has limits on Chinese textile imports. Such limits are an example of
•
a tariff
•
a quota
•
an embargo
•
a regulatory trade restriction
21
Consider if the government instituted a 10 percent income tax surcharge. In terms of the AS/AD model, this change should have
•
shifted the AD curve to the left
•
made the AD curve flatter
•
made the AD curve steeper
•
shifted the AD curve to the right
22
The Federal funds rate
•
can never be close to zero
•
is always slightly higher than the discount rate
•
may sometimes have to be targeted at zero
•
is an intermediate target
23
Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of
•
regulatory trade restrictions
•
tariffs
•
quotas
•
voluntary restrictions
24
According to Keynes, market economies
•
may recover slowly after they experience a significant decline in aggregate demand
•
are constantly experiencing significant declines in aggregate demand
•
quickly recover after they experience a significant decline in aggregate demand
•
never experience significant declines
25
The balance of trade measures the
•
share of U.S. imports coming from various regions of the world
•
difference between the value of imports and exports
•
exchange rate needed to make imports equal exports
•
share of U.S. exports going to various regions of the world
26
Expansionary monetary policy tends to
•
increase the U.S. interest rate and increase the U.S. exchange rate
•
increase the U.S. interest rate and decrease the U.S. exchange rate
•
lower the U.S. interest rate and decrease the U.S. exchange rate
•
lower the U.S. interest rate and increase the U.S. exchange rate
27
The Bureau of Economic Analysis is responsible for which of the following?
•
Setting interest rates
•
Managing the money supply
•
Paying unemployment benefits.
•
Calculating U.S. gross domestic product
28
Underemployment includes people
•
whose skills are not in demand anymore
•
who are working part time, or not using all their skills at a full-time job
•
who are tired of looking for a job, so they quit looking, but still want one
•
who work "off-the-books" to avoid tax liabilities
29
In the AS/AD model, an expansionary monetary policy has the greatest effect on the price level when it
•
increases real income but not nominal income
•
doesn't increase real or nominal income
•
increases both nominal and real income
•
increases nominal income but not real income
30
A weaker dollar
•
raises inflation and expands the economy
•
raises inflation and contracts the economy
•
reduces inflation and contracts the economy
•
reduces inflation and expands the economy
In considering the net effect of expansionary fiscal policy on the trade deficit, the
•
income effect offsets the price effect
•
price effect offsets the income effect
•
income and price effects work in the same direction, so the trade deficit is increased
•
income and price effects work in the same direction, so the trade deficit is decreased
2
In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because
•
the domestic currency will appreciate
•
the country eventually will sell all its financial assets to foreigners
•
the country eventually has to produce more than it consumes in order to pay foreigners their profits
•
the country eventually will consume more and produce less
3
The laissez-faire policy prescription to eliminate unemployment was to
•
strengthen unions and government regulations protecting unions and workers
•
eliminate labor unions and government policies that hold real wages too high
•
have government guarantee jobs for everyone
•
increase real wages so that people are encouraged to work
4
When a country runs a trade deficit, it does so by:
•
lending to foreign countries or buying assets from them.
•
lending to foreign countries or selling assets to them.
•
borrowing from foreign countries or selling assets to them.
•
borrowing from foreign countries or buying assets from them
5
Real gross domestic product is best defined as
•
the market value of intermediate goods and services produced in an economy, including exports
•
all goods and services produced in an economy, stated in the prices of a given year and multiplied by quantity
•
the market value of all final goods and services produced in an economy, stated in the prices of a given year
•
the market value of goods and services produced in an economy, stated in current-year prices
6
Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?
•
An increase in government spending
•
A reduction in government spending
•
An increase in taxes
•
No change in taxes or government spending
7
The market where business sell goods and services to households and the government is called the
•
money market
•
capital market
•
goods market
•
factor market
8
If the Federal Reserve increases the required reserves, financial institutions will likely lend out
•
more than before, increasing the money supply
•
more than before, decreasing the money supply
•
less than before, decreasing the money supply
•
less than before, increasing the money supply
9
Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2700 the Federal Reserve should
•
raise the discount rate by 3 percentage points
•
raise the discount rate by 10 percentage points
•
reduce the discount rate by 10 percentage points
•
reduce the discount rate by 3 percentage points
10
Expansionary fiscal policy tends to
•
raise U.S. income, increase U.S. imports, and lower the trade deficit
•
lower U.S. income, reduce U.S. imports, and increase the trade deficit
•
raise U.S. income, increase U.S. imports, and increase the trade deficit
•
lower U.S. income, reduce U.S. imports, and lower the trade deficit
11
If U.S. interest rates fall relative to Japanese interest rates and Japanese inflation falls relative to U.S. inflation, then the
•
change in the dollar's value cannot be determined
•
dollar will gain value in terms of yen
•
dollar's value will not change in terms of yen
•
dollar will lose value in terms of
12
Considering an economy with a current trade deficit and considering only the direct effect on income, an expansionary monetary policy tends to
•
decrease the exchange rate and decrease the trade deficit
•
increase the exchange rate and decrease the trade deficit
•
decrease the exchange rate and increase the trade deficit
•
increase the exchange rate and increase the trade deficit
13
Aggregate demand management policies are designed most directly to
•
minimize unemployment
•
control the aggregate level of spending in the economy
•
prevent budget deficits or surpluses
•
minimize inflation
14
The Federal Reserve provides which of the following data?
•
Bond yields of corporations
•
Federal funds rate
•
Stock price of GE
•
Debt to GDP of Ireland
15
What tool of monetary policy will the Federal Reserve use to increase the federal funds rate from 1% to 1.25%?
•
A change in reserve requirements
•
The discount rate
•
Margin requirements
•
Open-market operations
16
If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent. This policy would most likely
•
increase the money multiplier but decrease the money supply
•
increase both the money multiplier and the money supply
•
decrease the money multiplier but increase the money supply
•
decrease both the money multiplier and the money supply
17
A country can have a trade deficit as long as it can
•
produce more than it consumes
•
purchase foreign assets
•
borrow from or sell assets to foreigners
•
make loans to other countries
18
The largest source of household income in the U.S. is obtained from
•
interest earnings
•
rental income
•
wages and salaries
•
stock dividends
19
If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will
•
shift right by less than 20
•
shift right by exactly 20
•
shift right by more than 20
•
not shift at all
20
The U.S. has limits on Chinese textile imports. Such limits are an example of
•
a tariff
•
a quota
•
an embargo
•
a regulatory trade restriction
21
Consider if the government instituted a 10 percent income tax surcharge. In terms of the AS/AD model, this change should have
•
shifted the AD curve to the left
•
made the AD curve flatter
•
made the AD curve steeper
•
shifted the AD curve to the right
22
The Federal funds rate
•
can never be close to zero
•
is always slightly higher than the discount rate
•
may sometimes have to be targeted at zero
•
is an intermediate target
23
Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of
•
regulatory trade restrictions
•
tariffs
•
quotas
•
voluntary restrictions
24
According to Keynes, market economies
•
may recover slowly after they experience a significant decline in aggregate demand
•
are constantly experiencing significant declines in aggregate demand
•
quickly recover after they experience a significant decline in aggregate demand
•
never experience significant declines
25
The balance of trade measures the
•
share of U.S. imports coming from various regions of the world
•
difference between the value of imports and exports
•
exchange rate needed to make imports equal exports
•
share of U.S. exports going to various regions of the world
26
Expansionary monetary policy tends to
•
increase the U.S. interest rate and increase the U.S. exchange rate
•
increase the U.S. interest rate and decrease the U.S. exchange rate
•
lower the U.S. interest rate and decrease the U.S. exchange rate
•
lower the U.S. interest rate and increase the U.S. exchange rate
27
The Bureau of Economic Analysis is responsible for which of the following?
•
Setting interest rates
•
Managing the money supply
•
Paying unemployment benefits.
•
Calculating U.S. gross domestic product
28
Underemployment includes people
•
whose skills are not in demand anymore
•
who are working part time, or not using all their skills at a full-time job
•
who are tired of looking for a job, so they quit looking, but still want one
•
who work "off-the-books" to avoid tax liabilities
29
In the AS/AD model, an expansionary monetary policy has the greatest effect on the price level when it
•
increases real income but not nominal income
•
doesn't increase real or nominal income
•
increases both nominal and real income
•
increases nominal income but not real income
30
A weaker dollar
•
raises inflation and expands the economy
•
raises inflation and contracts the economy
•
reduces inflation and contracts the economy
•
reduces inflation and expands the economy
