Problem 1. The members of the Board of Governors are appointed by
A) The president.
B) Congress.
C) The Federal Reserve district banks.
D) The member banks.
Problem 2. Intermediate products are
A) goods that are purchased by the government.
B) goods that are transferred to the states.
C) products produced by the federal government but consumed by the states.
D) products produced by business firms for resale by other firms.
Problem 3. When inflation occurs
A) money gains in value.
B) money loses value.
C) the value of money is unaffected.
D) the value of demand deposits falls but the value of currency is unaffected.
E) inflation has nothing to do with money.
Problem 4. John Maynard Keynes
A) agreed with classical writers that strong automatic pressures drive market economies to full employment.
B) focused on attaining the long-run macroeconomic goal of high, but stable economic growth.
C) argued that a market economy might become stuck in a short-run equilibrium in which substantial capital and labor lay idle.
D) argued that short-run equilibrium occurs only at full employment.
Problem 5. Monetary policy consists of
A) actions taken by both the legislative and executive branches of government to control the nation's money supply.
B) actions taken by Congress to control the nation's money supply.
C) actions taken by the Federal Reserve System to control the nation's money supply.
D) actions taken by the executive branch of government to control the nation's money supply.
Problem 6. Price ceilings or price controls have the effect of
A) decreasing quantity supplied and increasing quantity demanded.
B) decreasing both quantity supplied and quantity demanded.
C) increasing quantity supplied and decreasing quantity demanded.
D) increasing both quantity supplied and quantity demanded.
Problem 7. Money is created when someone
A) takes out a bank loan.
B) pays back a bank loan.
C) spends money.
D) saves money.
Problem 8. The demand for money schedule shows that the quantity of money that people want to hold
A) rises with the level of income.
B) falls as income rises.
C) falls as the interest rate rises.
D) falls as the real price of money rises.
Problem 9. What is the aggregate supply curve?
A) a curve showing the various quantities of total real output that business will purchase for investment at various alternative price levels
B) a curve showing the various quantities of total real output that will be offered for sale at various alternative price levels
C) a curve showing the various quantities of goods and services that households will provide at various alternative price levels
D) a curve showing business investment at various alternative price levels
Problem 10. Which of the following is not demonstrated by a production possibility curve?
A) scarcity B) opportunity cost C) necessity for choice due to scarcity D) price
Problem 11. Real GDP is
A) the final estimate of GDP for a period.
B) GDP unadjusted for inflation.
C) GDP adjusted for inflation.
D) total income minus indirect business taxes.
Problem 12. The Federal Reserve conducts
A) only monetary policy.
B) only fiscal policy.
C) both monetary and fiscal policy.
D) neither monetary nor fiscal policy.
Problem 13. Which of the following is money?
A) A credit card B) A check C) A share of corporate stock D) None of these
Problem 14. Each of the following is an example of an economic resource except
A) land. B) money. C) capital. D) labor.
Problem 15. A ___________ is a legal person.
A) proprietorship B) partnership C) corporation D) business firm
Problem 16. Federal funds are
A) reserves that are loaned out on a very short-term basis by one bank to another bank.
B) loans banks make to their most credit-worthy customers.
C) required bank reserve.
D) funds owned by the Federal Reserve system.
Problem 17. The CPI is calculated by
A) summing the prices of all consumption goods in the economy.
B) multiplying the rate of inflation in the economy times the unemployment rate.
C) surveying a group of consumers and asking them about their monthly expenditures on necessities.
D) pricing a basket of goods and services purchased by a typical urban household.
Problem 18. Fiscal policy deals with each of the following EXCEPT
A) the money supply.
B) government spending.
C) taxation.
D) the federal budget.
Problem 19. When the supply of a good increases and the demand stays the same
A) the price of the good will rise.
B) the price of the good will fall and quantity will not change.
C) the price of the good will remain the same.
D) the price of the good will fall and quantity will rise.
Problem 20. When the Fed wants to increase the money supply it
A) raises the discount rate. C) sells U.S. government securities.
B) raises reserve requirements. D) buys U.S. government securities.
Problem 21. A demand schedule can be presented
A) only as a table. C) as a table and a graph.
B) only as a graph. D) as neither a table or a graph.
Problem 22. Budget deficits are appropriate during
A) recessions, but not inflations. C) recessions and inflations.
B) inflations, but not recessions. D) neither recessions nor inflations.
Problem 23. The total of our current and capital accounts
A) will always be zero. C) will always be positive.
B) will always be negative. D) may be positive or negative.
Problem 24. A business firm with limited liability would be a
A) proprietorship. B) partnership. C) corporation.
Problem 25. To fight a depression Keynes said that the government should
A) do nothing.
B) raise taxes.
C) spend money on carefully chosen projects.
D) spend a lot of money.
Problem 26. Inflation is
A) a rise in the price of every good and service.
B) a rise of exactly a specified percentage in the price of every good or service.
C) a rise in the average price level.
D) a rise in average prices of at least 10 percent a year.
Problem 27. A decrease in demand means that quantity demanded falls
A) at least one price. B) at a few prices. C) at most prices. D) at all prices.
Problem 28. If the economy dips into a recession
A) automatic stabilizers will cause tax receipts to fall and transfer payments to rise.
B) automatic stabilizers will cause tax receipts to rise and transfer payments to fall.
C) discretionary fiscal policy will generate increased transfer payments and lower tax receipts.
D) discretionary fiscal policy will reduce government outlays and increase tax receipts.
E) nothing will happen to the federal budget unless the President and Congress take specific corrective action.
Problem 29. Monetary policy includes all of the following EXCEPT
A) changes in government spending on goods and services.
B) changes in reserve requirements.
C) changes in the discount rate.
D) buying and selling government securities on the open market.
Problem 30. Expansionary fiscal policy involves
A) a decrease in government spending and/or an increase in taxes.
B) only an increase in taxes.
C) an increase in government spending and/or a decrease in taxes.
D) only a decrease in government spending.
Problem 31. Structural unemployment results from
A) changes in business inventories.
B) changes in interest rates.
C) changes in both technology and the changing demand for products.
D) all of the above.
Problem 32. An increase in the money supply is likely to
A) lower interest rates.
B) raise interest rates.
C) decrease the quantity of money demanded.
D) both b and c.
Problem 33. The main job of the Fed is to
A) control the rate of growth of the money supply.
B) manage the national debt.
C) provide low-interest loans to all financial institutions.
D) none of the above.
Problem 34. Which one of the following is counted in GDP?
A) government spending C) intermediate goods
B) transfer payments D) leisure time
Problem 35. Discouraged workers
A) are primarily manufacturing employees who have been displaced by machinery.
B) are comprised mainly of the cyclically unemployed, laid off because of recession.
C) are people who have stopped looking for work because they believe they will not be able to find employment.
D) are those workers who leave regular employment and work in the underground economy.
E) are temporarily between jobs.
Problem 36. A Fed sale of government securities leads to _____ in bank reserves and ________ in the money supply.
A) an increase, an increase C) a decrease, a decrease
B) an increase, a decrease D) a decrease, an increase
Problem 37. Open market operations are
A) the buying and selling of United States government securities by the Fed.
B) borrowing by banks from the Fed.
C) the selling of United States government securities by the United States Treasury.
D) raising or lowering reserve requirements by the Fed.
Problem 38. A tariff can best be described as
A) an excise tax on an imported good.
B) a government payment to domestic producers to enable them to sell competitively in world markets.
C) an excise tax on an exported good.
D) a law which sets a limit upon the amount of a good which can be imported.
Problem 39. We have business cycles of
A) the same length and amplitude.
B) the same length but of different amplitudes.
C) the same amplitude but of different lengths.
D) different lengths and amplitudes.
Problem 40. The interest rate is set by
A) supply and demand. C) the U.S. Treasury Department.
B) law. D) government edict.
Problem 41. When supply rises and demand stays the same,
A) equilibrium price rises. C) equilibrium price is not affected.
B) equilibrium price falls. D) equilibrium quantity falls.
Problem 42. The larger the reserve ratio the
A) smaller the deposit expansion multiplier.
B) larger the deposit expansion multiplier.
C) less the impact of an increase in reserves.
Problem 43. The term recession refers to
A) a period of decline in real GDP for two business quarters.
B) a fall in the general level of real wages.
C) a fall in the CPI.
D) a fall in the rate of increase of real per capita GDP.
E) a prolonged period of falling prices.
Problem 44. When the Swiss franc appreciates relative to the dollar
A) it becomes less expensive in terms of the dollar.
B) it takes fewer dollars to buy a Swiss franc.
C) it takes more dollars to buy a Swiss franc.
D) none of the above.
Problem 45. Each of these is true at equilibrium except that
A) quantity demanded is equal to quantity supplied.
B) the market is said to clear.
C) demand and supply are equal.
D) the buyers can buy as much as they want at the market price.
E) the sellers can sell as much as they want at the market price.
Problem 46. The discount rate refers to
A) the penalty paid by risky bank borrowers; that is, the amount of interest they pay in excess of the prime rate.
B) the rate at which banks write off bad loans.
C) the rate at which assets lose their real value as a result of inflation.
D) the rate at which money loses its value as a result of inflation.
E) the rate of interest that the Fed charges on loans to commercial banks.
Problem 47. Gross Domestic Product is the total market value of all
A) commodities sold in a year. C) production during a year.
B) services produced in a year. D) consumer goods sold in a year.
Problem 48. An import quota is
A) a tax on imported goods.
B) revenue producing for state governments but not the federal government.
C) always tied to a foreign nation's trade policies toward American goods sold in that country.
D) deflationary.
E) a limit on the quantity of foreign goods that can be sold in a nation's domestic market.
Problem 49. Transfer payments are
A) such things as imputed rent and underground activity.
B) included in the national income account.
C) excluded from the personal income account.
D) included in the gross domestic product account.
E) excluded from the gross domestic product account because they do not reflect current production.
Problem 50. Bank deposit creation is limited by
A) reserve requirements
B) the interest rate.
C) whether a bank is nationally or state chartered.
D) whether a bank is in a large city or rural area.
Problem 51. We would not need to economize if
A) the government printed more money.
B) there was no scarcity.
C) there was less output of goods and services.
D) everyone received a big pay increase.
Problem 52. A production possibilities curve shows
A) that in order to acquire more of one good, none of the alternative good must be given up.
B) that in order to acquire more of one good, some of the alternative good must be given up.
C) that any amount of goods could be produced by society if people worked harder.
D) various combinations of guns and butter that can be produced under conditions of 6 percent unemployment.
Problem 53. Entrepreneurship is
A) the financial capital necessary to launch a new business.
B) the talent to develop new products and processes and to organize production to make goods and services available.
C) unskilled labor.
D) the physical capital resources used to produce goods and services.
Problem 54. Resources include:
A) land, labor, and money. D) corporations and partnerships.
B) entrepreneurship and capital. E) monopoly and pure competition.
C) capital and money.
Problem 55. If supply increases and demand remains unchanged, equilibrium quantity will _______ and equilibrium price will _________.
A) rise, rise B) fall, fall C) fall, rise D) rise, fall
Problem 56. As price declines, quantity demanded goes _______ and quantity supplied goes ________.
A) up, up B) down, down C) up, down D) down, up
Problem 57. An increase in supply means that quantity supplied rises
A) at least one price. B) at a few prices. C) at most prices. D) at all prices.
Problem 58. When the market price is lower than the equilibrium price, there is
A) a surplus. C) both a shortage and a surplus.
B) a shortage. D) neither a shortage nor a surplus.
Problem 59. At equilibrium, each of these is true except
A) quantity demanded equals quantity supplied.
B) the price has no tendency to change.
C) market price equals equilibrium price.
D) there may be a shortage or a surplus.
Problem 60. Private ownership of most of the means of production is common to
A) capitalism and communism. C) capitalism and socialism.
B) capitalism and fascism. D) fascism and communism.
Problem 61. The government performs each of the following economic functions except
A) collecting taxes. C) issuing regulations.
B) spending. D) operating the price mechanism.
Problem 62. An example of a public good would be
A) a plane ride from Miami to Dallas.
B) flood control protection from the Tennessee Valley Authority (TVA).
C) a commuter's trip to work by car from Berkeley to Chicago.
D) a ride on a Greyhound bus from Phoenix to Los Angeles.
Problem 63. Market failure means that
A) the law of supply and demand has stopped functioning.
B) our resources are not allocated efficiently.
C) the stock market has crashed.
D) prices are no longer reliable indicators of how much things cost.
Problem 64. Statement I. Pollution is an example of an externality.
Statement II. Mowing your lawn provides an external benefit.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
Problem 65. Adam Smith
A) was a Scottish professor of philosophy.
B) wrote The Wealth of Nations.
C) said that the entrepreneur is motivated by self-interest.
D) coined the term "the invisible hand," which means that the profit motive guides economic resources which effectively promotes the public interest.
E) all of the above.
Problem 66. An external cost occurs when
A) some of the benefits derived from the production or consumption of some good or service are enjoyed by a third party.
B) the production or consumption of some good or service inflicts costs on a third party without compensation.
C) private costs exceed social costs.
D) private costs exceed private benefits.
Problem 67. In a progressive tax structure,
A) the marginal tax rate exceeds the average tax rate.
B) vertical equity exists.
C) the average tax rate rises as income falls.
D) all of the above
Problem 68. Clark Kent, a middle-aged bachelor, quit his news reporter job and currently is looking for a better job. The BLS counts Clark as
A) not in the labor force. D) a discouraged worker.
B) employed. E) functionally employed.
C) unemployed.
Problem 69. Fiscal policy deals with each of the following EXCEPT
A) the money supply. C) taxation.
B) government spending. D) the federal budget.
Problem 70. Unemployment due to the length of time it takes to find employment upon entering the labor force or voluntarily between jobs is called
A) cyclical unemployment. C) structural unemployment.
B) frictional unemployment. D) natural unemployment.