Question 1. Which of the following is true about Keynesian policies views?
a. The cause of inflation is a combination of institutional and monetary factors.
b. The best approach for combating recessionary unemployment is expansionary monetary and fiscal policy.
c. Keynesian economists believe that a small amount of inflation may be good for the economy, and they do not advocate pushing inflation to zero if it means that a significant amount of unemployment will result.
d. All of the above.
Question 2. Contractionary monetary policy may not be advantageous for which of the following reasons?
a. The trade deficit may increase.
b. Increases the value of the dollar
c. Capital will flow into the country
d. The policy helps fight inflation
e. None of the above.
Question 3. You have been hired as an economic adviser to a large bank. What buy or sell recommendations for the US dollar in response to the following news:
a. Expectations of higher interest rates in the US
b. US interest rates rise, but less than expected
c. Expected loosening of US monetary policy
d. Higher inflation predictions for the US.
Question 4. Which of the following is not an example of expansionary monetary policy tools of the Federal Reserve?
a. Lowering the discount rate
b. Buying government bonds
c. Lowering the reserve requirement
d. Selling government bonds
e. Lowering the target for the federal funds rate.
Question 5. When the interest rate falls, people are:
a. Less likely to borrow or demand financial assets
b. More likely to borrow or supply a financial asset
c. More likely to borrow or to demand a financial asset
d. Less likely to borrow or supply a financial asset
e. Make no change
Question 6. The multiplier effect implies that:
a. The economy is always in equilibrium
b. The economy cannot be in equilibrium
c. A $100 change in autonomous expenditures causes equilibrium income to be equal to $100.
d. A $100 change in autonomous expenditures causes equilibrium income to change by more than $100
e. A $100 change in autonomous expenditure causes equilibrium income to change by less than $100
Question 7. Explain the purpose of leading economic indicators and list five leading economic indicators.
8. Explain 3 different types of unemployment and why unemployment statistics are likely wrong.
Frictional unemployment- transitional period for unemployed workers while they searching for a new job after leaving or being fired from their old job. Also may apply to individuals reentering the labor force after an illness, time in school or medical and family related issues.
Structural unemployment – occurs when there are more people looking for a job than there are jobs available.
Seasonal unemployment – occurs during changes of the season and different times of the year such as landscaping which is not usually constant work during the winter months.
Question 9. Explain the impact on the US trade deficit if the dollar weakens. (2 points)
Question 10. Explain Net Exports and the impact on GDP calculation. (2 points)
Question 11. Provide two benefits and two problems with the government deficit. (2 points)
Question 12. Which of the following is not a component in calculations of GDP?
a. Investment
b. Government spending
c. Wealth
d. Consumption
e. Net exports
Question 13. To avoid double counting in calculation of GDP, you must eliminate intermediate goods, either by calculating only final output or by calculating only final income by using the _____________ .
Question 14. Explain the ‘coordination problem’ of economics and how a free market economy solves the problem.
Question 15. The production possibility curve (PPC) is a curve measuring the maximum combination of outputs that can be produced from a given number of inputs. Explain why the shape of the PPC is generally bowed outward.
Question 16. The law of demand states that the quantity demanded decreases as the price decreases.
a. True
b. False
Question 17. Other things being equal, if the price of gasoline were to increase then:
a. A surplus gasoline will develop in a free market economy resulting in an increase in gasoline prices.
b. Demand for using rapid transit alternatives will increase and quantity demanded for gasoline will fall
c. The demand for using rapid transit alternatives will increase and the quantity demanded for gasoline will increase
d. A shortage of gasoline will develop in a market economy resulting in a decrease in gasoline prices.