Practice Questions for Midterm Examination of Economics

Practice Questions for Midterm Examination of Economics
1.Which of the following events would cause GDP for 2007 to increase?
a. In February 2007, Amanda sells a 1996 Honda Accord to Isabella.
b. In February 2007, Amanda buys a ticket to visit a zoo in Florida. She visits
the zoo in April 2007.
c. In December 2007, Isabella eats onions that she harvested from her backyard
garden in October 2007.
d. All of the above are correct.
2.A Minnesota farmer buys a new tractor made in Iowa by a German company. As a
result,
a. U.S. investment and GDP increase, but German GDP is unaffected.
b. U.S. investment and German GDP increase, but U.S. GDP is unaffected.
c. U.S. investment, U.S. GDP, and German GDP are unaffected, because
tractors are intermediate goods.
d. U.S. investment, U.S. GDP, and German GDP all increase.
3.The U.S. government pays an economist at the U.S. Department of Commerce
$50,000 in salary in 2006. The economist then retires. In 2007, the
government pays him $30,000 in retirement benefits. Which of the following is
correct?
a. The 2006 payment is included in 2006 GDP as government purchases, and
the 2007 payment is included in 2007 GDP as government purchases.
b. The 2006 payment is included in 2006 GDP as government purchases, but
the 2007 payment is not included in 2007 GDP.
c. The 2006 payment is included in 2006 GDP as government purchases, and
the 2007 payment is included in 2007 GDP as government transfer payments.
d. The 2006 payment is included in 2006 GDP as government purchases, and
the 2007 payment is allocated to previous years' GDP according to the
amount of work performed by the economist each year.
4.If a U.S. citizen buys a television made in Korea by a Korean firm, then
a. U.S. net exports decrease and U.S. GDP decreases.
b. U.S. net exports are unaffected and U.S. GDP decreases.
c. U.S. net exports are unaffected and U.S. GDP is unaffected.
d. U.S. net exports decrease and U.S. GDP is unaffected.
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5.The table below contains data for the country of Togogo.
Year
Nominal
GDP
GDP
Deflator
1974
$2000
100
1975
$3000
120
1976
$3750
150
1977
$6000
200
The base year is 1974.
Which of the following is not correct?
a. This economy experienced growth from 1974 to 1975.
b. This economy experienced growth from 1975 to 1976.
c. This economy experienced growth from 1976 to 1977.
d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976,
and from 1976 to 1977.
6.The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In
2004 it sells all 25 cars.
a. The value of increased inventory will be counted as part of GDP in 2003, but
the value of the cars sold in 2004 will not cause GDP to increase.
b. The value of the increased inventory will not affect 2003 GDP, but will be
included in 2004 GDP.
c. The value of the increased inventory will be counted as 2003 GDP and the
value of the cars sold in 2004 will increase 2004 GDP.
d. None of the above are correct.
7.Suppose that Wisconsin produces cheese and fish. In 2002, 20 units of cheese are
sold at $5 each, and 8 units of fish are sold at $50 each. In 2001, the base year,
the price of cheese was $10 per unit, and the price of fish was $75 per unit.
a. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is
160.
b. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is
160.
c. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is
62.5.
d. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is
62.5.
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8.The CPI is more commonly used as a gauge of inflation than the GDP deflator is
because
a. the CPI is easier to measure.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the GDP deflator cannot be used to gauge inflation.
9.The table below pertains to Yackandsnack, an economy in which the typical
consumer’s basket consists of 2 cell phones and 20 ham sandwiches.
Year
Price of a
Cell Phone
Price of a
Ham
Sandwich
2006
$50
$3
2007
$60
$4
2008
$55
$5
If the base year is 2006, then the consumer price index was
a. 100 in 2006, 125 in 2007, and 131.25 in 2008.
b. 100 in 2006, 200 in 2007, and 210 in 2008.
c. 160 in 2006, 125 in 2007, and 131.25 in 2008.
d. 160 in 2006, 200 in 2007, and 210 in 2008.
10.A decrease in the price of large tractors imported into the United States from
Russia
a. leaves the GDP deflator unchanged but decreases the consumer price index.
b. decreases the GDP deflator but leaves the consumer price index unchanged.
c. decreases both the GDP deflator and the consumer price index.
d. leaves both the GDP deflator and the consumer price index unchanged.
11.In 1931, President Herbert Hoover was paid a salary of $75,000. Government
statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.
President Hoover’s 1931 salary was equivalent to a 2007 salary of about
a. $5507.
b. $1,021,382.
c. $1,140,000.
d. $15,525,000.
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12.The consumer price index was 225 in 2006 and 234 in 2007. The nominal
interest rate during this period was 6.5 percent. What was the real interest rate
during this period?
a. 2.5 percent
b. 4.0 percent
c. 6.76 percent
d. 10.5 percent
13.An inflation rate calculated using the CPI shows the rate of change of
a. all prices.
b. the prices of all final goods and services.
c. the prices of all consumer goods.
d. the prices of some consumer goods.
14. Laura bought word-processing software in 2005 for $50. Laura's twin brother,
Laurence, buys an upgrade of the same software in 2006 for $50. What problem
in the construction of the CPI does this situation best represent?
a. substitution bias
b. unmeasured quality change
c. introduction of new goods
d. income bias
15. Suppose that over the last ten years productivity grew faster in Oceania than in
Freedonia and the population of both countries was unchanged.
a. It follows that real GDP per person must be higher in Oceania than in
Freedonia.
b. It follows that real GDP per person grew faster in Oceania than in Freedonia.
c. It follows that the standard of living must be higher in Oceania than in
Freedonia.
d. All of the above are correct.
16. If an economy with constant returns to scale were to double its physical capital
stock, its available natural resources, and its human capital, but leave the size of
the labor force the same,
a. its output would stay the same and so would its productivity.
b. its output and productivity would increase, but less than double.
c. its output and productivity would increase by more than double.
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d. None of the above is correct.
17.On the horizontal axis, K/L represents capital (K) per worker (L). On the
vertical axis, Y/L represents output (Y) per worker (L).
Y/L
K/L
The shape of the curve is consistent with which of the following statements about the
economy to which the curve applies?
a. In the long run, a higher saving rate leads to a higher growth rate of
productivity.
b. In the long run, a higher saving rate leads to a higher growth rate of income.
c. Returns to capital become increasingly smaller as the amount of capital per
worker increases.
d. All of the above are correct.
18.Suppose that there are diminishing returns to capital. Suppose also that two
countries are the same except one has less capital and so less real GDP per
person. Suppose that both increase their saving rate from 3 percent to 4 percent.
In the long run
a. both countries will have permanently higher growth rates of real GDP per
person, and the growth rate will be higher in the country with more capital.
b. both countries will have permanently higher growth rates of real GDP per
person, and the growth rate will be higher in the country with less capital.
c. both countries will have higher levels of real GDP per person, and the
temporary increase in growth in the level of real GDP per person will have
been greater in the country with more capital.
d. both countries will have higher levels of real GDP per person, and the
temporary increase in growth in the level of real GDP per person will have
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been greater in the country with less capital.
19.Suppose U.S.-based Intel Corporation builds and operates a new computer chip
factory in Honduras. Future production from such an investment would
a. increase Honduran GDP more than it would increase Honduran GNP.
b. increase Honduran GNP more than it would increase Honduran GDP.
c. not affect Honduran GNP, but would increase Honduran GDP.
d. have no affect on either Honduran GDP or GNP.
20.The Economic Development Minister of a country has a list of things she thinks
may explain her country's low growth of real GDP per person relative to other
countries. She asks you to pick the one you think most likely explains her
country's low growth. Which of the following contributes to low growth?
a. poorly enforced property rights
b. outward-oriented trade policies
c. policies that permit foreign investment
d. All of the above are correct.
21.Over the past 100 years, U.S. real GDP per person has doubled about every 35
years. If in the next 100 years it doubles every 25 years, then a century from now
U.S. real GDP per person will be
a. 4 times higher than it is now.
b. 8 times higher than it is now.
c. 12 times higher than it is now.
d. 16 times higher than it is now.
22.We would expect the interest rate on Bond A to be higher than the interest rate on
Bond B if the two bonds have identical characteristics except that
a. Bond A was issued by a financially weak corporation and Bond B was issued
by a financially strong corporation.
b. Bond A was issued by the General Electric Corporation and Bond B was
issued by the state of California.
c. Bond A has a term of 20 years and Bond B has a term of 1 year.
d. All of the above are correct.
23.Municipal bonds pay a relatively
a. low rate of interest because of their high default risk and because the interest
they pay is subject to federal income tax.
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b. low rate of interest because of their low default risk and because the interest
they pay is not subject to federal income tax.
c. high rate of interest because of their high default risk and because federal
taxes must be paid on the interest they pay.
d. high rate of interest because of their low default risk and because the interest
they pay is not subject to federal income tax.
24.Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500,
consumption equals 7,000, and government purchases equal 3,000. What are
private saving and public saving?
a. 1,500 and -500, respectively
b. 1,500 and 500, respectively
c. 1,000 and -500, respectively
d. 1,000 and 500, respectively
Scenario: Assume the following information for an imaginary, closed economy.
GDP = $110,000; consumption = $70,000; private saving = $8,000; national
saving = $12,000.
25.For this economy, investment amounts to
a. $4,000.
b. $8,000.
c. $12,000.
d. $16,000.
26.This economy’s government is running a
a. budget surplus of $4,000.
b. budget surplus of $8,000.
c. budget deficit of $4,000.
d. budget deficit of $8,000.
27.Suppose the government were to replace the income tax with a consumption tax so
that interest on savings was not taxed. The result would be that the interest rate
a. and investment both would increase.
b. and investment both would decrease.
c. would increase and investment would decrease.
d. would decrease and investment would increase.
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28.A change in the tax laws that increases the supply of loanable funds will have a
bigger effect on investment when
a. the demand for loanable funds is more elastic and the supply of loanable
funds is more inelastic.
b. the demand for loanable funds is more inelastic and the supply of loanable
funds is more elastic.
c. both the demand for and supply of loanable funds are more elastic.
d. both the demand for and supply of loanable funds are more inelastic.
29.A person who is counted as unemployed by the Bureau of Labor Statistics
a. is also in the labor force.
b. must have recently looked for work or be on temporary layoff.
c. be at least 16 years old.
d. All of the above are correct.
30.Sirius has just finished high school and started looking for his first job, but has not
yet found one. Other things the same, the unemployment rate
a. and the labor-force participation rate both increase.
b. increases and the labor-force participation rate is unaffected.
c. is unaffected and the labor-force participation rate increases.
d. and the labor-force participation rate are both unaffected.
Labor Data for Wrexington
Year
2004
2005
2006
Adult population
2000
3000
3200
Number of employed
1400
1300
1600
Number of
unemployed
200
600
200
31.The labor-force participation rate of Wrexington
a. increased from 2004 to 2005 and increased from 2005 to 2006.
b. increased from 2004 to 2005 and decreased from 2005 to 2006.
c. decreased from 2004 to 2005 and increased from 2005 to 2006.
d. decreased from 2004 to 2005 and decreased from 2005 to 2006.
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32.Merideth is looking for work as a computer programmer. Although her prospects
are good she hasn’t yet taken a job. Julie is looking for work in a steel mill, but
there aren’t many job ads for steel workers and every time she shows up for an
interview, there are many more people than openings.
a. Meredith and Julie are both frictionally unemployed.
b. Meredith and Julie are both structurally unemployed.
c. Meredith is frictionally unemployed, and Julie is structurally unemployed.
d. Meredith is structurally unemployed, and Julie is frictionally unemployed.
33.Which of the following is not correct?
a. It is only among the least skilled and least experienced members of the labor
force that minimum-wage laws cause unemployment.
b. The equilibrium wages of the least skilled and least experienced members of
the labor force tend to be low, and, therefore, are more likely to fall below the
legal minimum wage.
c. If the wage is kept below the equilibrium level for any reason, the result is
unemployment.
d. Minimum-wage laws, unions, and efficiency wages are all reasons wages
may be kept above the equilibrium level.
34.Suppose that efficiency wages become more common in the economy.
Economists would predict that this would
a. increase the quantity demanded and decrease the quantity supplied of labor,
thereby decreasing the natural rate of unemployment.
b. decrease the quantity demanded and increase the quantity supplied of labor,
thereby increasing the natural rate of unemployment.
c. increase the quantity demanded and decrease the quantity supplied of labor,
thereby increasing the natural rate of unemployment.
d. decrease the quantity demanded and increase the quantity supplied of labor,
thereby decreasing the natural rate of unemployment.
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35.Suppose that some people report themselves as unemployed when, in fact, they are
working in the underground economy. If these persons were counted as
employed,
a. both the unemployment rate and labor-force participation rate would be
higher.
b. both the unemployment rate and labor-force participation rate would be
lower.
c. the unemployment rate would be higher and the labor-force participation rate
would be higher.
d. the unemployment rate would be lower and the labor-force participation rate
would be unaffected.
36.In a system of 100-percent-reserve banking,
a. banks do not accept deposits.
b. banks do not influence the supply of money.
c. loans are the only asset item for banks.
d. All of the above are correct.
37.An economy starts with $10,000 in currency. All of this currency is deposited
into a single bank, and the bank then makes loans totaling $9,250. The
T-account of the bank is shown below.
Assets
Liabilities
Reserves
Deposits
$750
$10,000
Loans
9,250
If all banks in the economy have the same reserve ratio as this bank, then the value of
the economy’s money multiplier is
a. 1.33.
b. 10.00.
c. 10.81.
d. 13.33.
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38.To increase the money supply, the Fed can
a. buy government bonds or increase the discount rate.
b. buy government bonds or decrease the discount rate.
c. sell government bonds or increase the discount rate.
d. sell government bonds or decrease the discount rate.
39.The manager of the bank where you work tells you that your bank has $5 million
in excess reserves. She also tells you that the bank has $300 million in deposits
and $255 million dollars in loans. Given this information you find that the
reserve requirement must be
a. 50/255.
b. 40/255.
c. 50/300.
d. 40/300.
40.In a 100-percent-reserve banking system, if people decided to decrease the amount
of currency they held by increasing the amount they held in checkable deposits,
then
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.
41.The money supply decreases if
a. households decide to hold relatively more currency and relatively fewer
deposits and banks decide to hold relatively more excess reserves and make
fewer loans.
b. households decide to hold relatively more currency and relatively fewer
deposits and banks decide to hold relatively fewer excess reserves and make
more loans.
c. households decide to hold relatively less currency and relatively more
deposits and banks decide to hold relatively more excess reserves and make
fewer loans.
d. households decide to hold relatively less currency and relatively more
deposits and banks decide to hold relatively less excess reserves and make
more loans.
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42.Suppose that the Federal Reserve increases bank reserves and banks lend out some
of these reserves, but at some point banks still have $5 million more they wish to
lend out. If the required reserve ratio is 10%, how much more money can banks
create if they lend out the remaining amount?
a. $55 million
b. $50 million
c. $45 million
d. $40 million
43.When the Fed increases the discount rate, banks will
a. borrow more from the Fed and lend more to the public. The money supply
increases.
b. borrow more from the Fed and lend less to the public. The money supply
decreases.
c. borrow less from the Fed and lend more to the public. The money supply
increases.
d. borrow less from the Fed and lend less to the public. The money supply
decreases.
44.When the money market is drawn with the value of money on the vertical axis, if
the price level is above the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
45.According to the classical dichotomy, when the money supply doubles which of
the following double?
a. the price level and nominal GDP
b. the price level and real GDP
c. only real GDP
d. only the price level
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46.The money supply in Tazland is $100 billion. Nominal GDP is $800 billion and
real GDP is $200 billion. What are the price level and velocity in Tazland?
a. the price level and velocity are both 8
b. the price level is 8 and velocity is 4
c. the price level and velocity are both 4
d. the price level is 4 and velocity is 8
47.Suppose that the United States unexpectedly decided to pay off its debt by printing
new money. Which of the following would happen?
a. People who held money would feel poorer.
b. Prices would rise.
c. People who had lent money at a fixed interest rate would feel poorer.
d. All of the above are correct.
48.If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,
what is the real interest rate?
a. 7 percent
b. 5 percent
c. 3 percent
d. 3/5 percent
49.GDP is defined as the market value of all final goods and services produced
a. by the citizens of a country, regardless of where they live, in a given period
of time; this definition focuses on GDP as a measure of total income.
b. by the citizens of a country, regardless of where they live, in a given period
of time; this definition focuses on GDP as a measure of total expenditure.
c. within a country in a given period of time; this definition focuses on GDP as
a measure of total income.
d. within a country in a given period of time; this definition focuses on GDP as
a measure of total expenditure.
50. When comparing the standard of living in two countries it is important to adjust
total output for differences in:
a. time zones
b. geographic area
c. political systems
d. population
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e. elevation
51. If business inventories at the beginning of the year equal $20 billion and equal $30
billion at the end of the year, then GDP will:
a. decrease by $10 billion.
b. increase by $10 billion.
c. increase by $20 billion.
d. increase by $30 billion.
e. not change.
52. Peg's Manicure Manor did 4,000 sets of nails in the year 2006 and 4,500 sets of
nails in the year 2007. The price of a set of nails was $20 in 2006 and $22 in
2007. If the year 2006 is the base year, Peg's contribution to real GDP in 2006
was _____ and in 2007 was _____.
a. $80,000; $88,000
b. $80,000; $90,000
c. $80,000; $99,000
d. $88,000; $90,000
e. $90,000; $99,000
53.Which one of the following transactions in a particular year is included in gross
domestic product for that year?
a. A car is produced in the previous year and remains in inventory for the entire
year under consideration.
b. Social Security payments (社會安全給付) to retirees (退休者)
c. A stay-at-home parent performs housework that the family would otherwise
have paid a maid $20,000 a year to perform.
d. The government pays a computer services company that assisted in the
delivery of Social Security payments to retirees.
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54. Which of the following transactions adds to U.S. GDP for 2006?
a. In 2006, Marvin Windows manufactures 20 windows that will eventually be
installed in an office building in Minneapolis. The windows remain in
Marvin’s inventory at the end of 2006.
b. An Irish marketing consultant works in Boston during the summer of 2006
and earns $30,000 during that time.
c. When John and Jennifer were both single, they lived in separate apartments
and each paid $750 in rent. John and Jennifer got married in 2006 and they
bought a house that, according to reliable estimates, could be rented for
$1,600 per month.
d. All of the above transactions adds to GDP for 2006.
55. If Susan switches from going to Speedy Lube for an oil change to changing the oil
in her car herself, then GDP
a. necessarily rises.
b. necessarily falls.
c. will be unaffected because the same service is produced in either case.
d. will be unaffected because car maintenance is not included in GDP.
56.Darla, a Canadian citizen, works only in the United States. The value that her labor
contributes to U.S. output is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
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57.An American company operates a fast food restaurant in Romania. Which of the
following statements is accurate?
a. The value of the goods and services produced by the restaurant is included in
both Romanian GDP and U.S. GDP.
b. One-half of the value of the goods and services produced by the restaurant is
included in Romanian GDP, and the other one-half of the value is included in
U.S. GDP.
c. The value of the goods and services produced by the restaurant is included in
Romanian GDP, but not in U.S. GDP.
d. The value of the goods and services produced by the restaurant is included in
U.S. GDP, but not in Romanian GDP.
58.Unlike national income, personal income
a. includes retained earnings, corporate income taxes and social insurance
contributions, and excludes interest and transfer payments received by
households from government.
b. excludes retained earnings, corporate income taxes, social insurance
contributions, and interest and transfer payments received by households
from government.
c. excludes retained earnings, corporate income taxes and social insurance
contributions, and includes interest and transfer payments received by
households from government.
d. includes retained earnings, corporate income taxes, social insurance
contributions, and interest and transfer payments received by households
from government.
59. If a U.S. citizen buys a television made in Korea by a Korean firm,
a. U.S. net exports decrease and U.S. GDP decreases.
b. U.S. net exports are unaffected and U.S. GDP decreases.
c. U.S. net exports are unaffected and U.S. GDP is unaffected.
d. U.S. net exports decrease and U.S. GDP is unaffected.
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60. The steps involved in calculating the consumer price index, in order, are as
follows:
a. Choose a base year, fix the basket, compute the inflation rate, compute the
basket's cost, and compute the index.
b. Choose a base year, find the prices, fix the basket, compute the basket's cost,
and compute the index.
c. Fix the basket, find the prices, compute the basket's cost, choose a base year
and compute the index.
d. Fix the basket, find the prices, compute the inflation rate, choose a base year
and compute the index.
61.The table below pertains to an economy with only two goods -- books and
calculators. The fixed basket consists of 5 books and 10 calculators.
Year
2006
2007
2008
Price of books
$24
30
32
Price of calculators
$8
12
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Refer to Table. Using 2006 as the base year, the inflation rate is
a. 13.3 percent for 2007 and 14.8 percent for 2008.
b. 35 percent for 2007 and 14.8 percent for 2008.
c. 35 percent for 2007 and 55 percent for 2008.
d. 135 percent for 2007 and 155 percent for 2008.
62.Suppose the price of gasoline increases rapidly, and that consumers respond by
buying a smaller quantity of gasoline. The consumer price index
a. reflects this price increase accurately.
b. understates the price increase due to the so-called income bias.
c. overstates the price increase due to the so-called income bias.
d. overstates the price increase due to the so-called substitution bias.
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63.An important difference between the GDP deflator and the consumer price index is
that
a. the GDP deflator reflects the prices of goods and services bought by
producers, whereas the consumer price index reflects the prices of goods and
services bought by consumers.
b. the GDP deflator reflects the prices of all final goods and services produced
domestically, whereas the consumer price index reflects the prices of some
goods and services bought by consumers.
c. the GDP deflator reflects the prices of all final goods and services produced
by a nation's citizens, whereas the consumer price index reflects the prices of
final goods and services bought by consumers.
d. the GDP deflator reflects the prices of all goods and services bought by
producers and consumers, whereas the consumer price index reflects the
prices of final goods and services bought by consumers.
64.Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
65.Suppose that over the last ten years productivity grew faster in Oceania than in
Freedonia and the population of both countries was unchanged.
a. It follows that real GDP per person must be higher in Oceania than in
Freedonia.
b. It follows that real GDP per person grew faster in Oceania than in Freedonia.
c. It follows that the standard of living must be higher in Oceania than in
Freedonia.
d. All of the above are correct.
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66.Which of the following is consistent with the catch-up effect?
a. The United States had a higher growth rate before 1900 than after.
b. After World War II the United States had lower growth rates than
war-ravaged European countries.
c. Although the United States has a relatively high level of output per person,
its growth rate is rather modest compared to some countries.
d. All of the above are correct.
67.Municipal bonds pay a relatively
a. low rate of interest because of their high-default risk and because the interest
they pay is subject to federal income tax.
b. low rate of interest because of their low-default risk and because the interest
they pay is not subject to federal income tax.
c. high rate of interest because of their high-default risk and because federal
taxes must be paid on the interest they pay.
d. high rate of interest because of their low-default risk and because the interest
they pay is not subject to federal income tax.
68.All else equal, when people become more optimistic about a company's future, the
a. supply of the stock and the price will both rise.
b. supply of the stock and the price will both fall.
c. demand for the stock and the price will both rise.
d. demand for the stock and the price will both fall.
69.According to the definitions of national saving and public saving, if Y, C, and G
remained the same, an increase in taxes would
a. raise national saving and public saving.
b. raise national saving and raise public saving.
c. leave national saving and public saving unchanged.
d. leave national saving unchanged and raise public saving.
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70.Tom buys a bond issued by Budweiser, which uses the funds to buy new
machinery for one of its breweries.
a. Tom and Budweiser are both investing.
b. Tom and Budweiser are both saving.
c. Tom is investing; Budweiser is saving.
d. Tom is saving; Budweiser is investing.
71.Other things the same, an increase in the interest rate
a. would shift the demand for loanable funds to the right.
b. would shift the demand for loanable funds to the left.
c. would increase the quantity of loanable funds demanded.
d. would decrease the quantity of loanable funds demanded.
72.If Congress instituted an investment tax credit, the interest rate would
a. rise and saving would rise.
b. fall and saving would fall.
c. rise and saving would fall.
d. fall and saving would rise.
73.Suppose that government expenditures on goods and services increase, transfers
are unchanged, and taxes rise by less than the increase in expenditures. These
changes in the government’s budget make
a. the interest rate and the equilibrium quantity of loanable funds both fall.
b. the interest rate and the equilibrium quantity of loanable funds both rise.
c. the interest rate rise and the equilibrium quantity of loanable funds fall.
d. the interest rate fall and the equilibrium quantity of loanable funds rise.
74.A change in the tax laws which increases the supply of loanable funds will have a
bigger effect on investment when
a. the demand for loanable funds is more elastic and the supply of loanable
funds is more inelastic.
b. the demand for loanable funds is more inelastic and the supply of loanable
funds is more elastic.
c. both the demand for and supply of loanable funds are more elastic.
d. both the demand for and supply of loanable funds are more inelastic.
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75.Jack is a full-time unpaid homemaker not currently searching for other work. Jill is
a full-time student who is not looking for a job. Who does the BLS count in the
labor force?
a. only Jack
b. only Jill
c. both Jack and Jill
d. neither Jack nor Jill
This table shows the 2003 data for males and females ages 16 and over in the
imaginary country of Meditor.
1. Not in labor force
a. male: 45 million
b. female: 35 million
2. Unemployed
a. male: 5 million
b. female: 5 million
3. Employed
a. male: 85 million
b. female: 65 million
76.Refer to Labor Stats. What is the adult unemployment rate in Meditor?
a. 4.12%
b. 6.25%
c. 11.11%
d. 12.50%
77.Refer to Labor Stats. What is the adult female labor-force participation rate in
Meditor?
a. 4.76%
b. 38.10%
c. 66.67%
d. 80.95%
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78.Unemployment that exists because it takes time for workers to search for the job
that suits them best is
a. frictional unemployment, which partly accounts for the natural rate of
unemployment.
b. frictional unemployment, which does not help account for the natural rate of
unemployment.
c. structural unemployment, which partly accounts for the natural rate of
unemployment.
d. structural unemployment, which does not help account for the natural rate of
unemployment.
79.Providing training for unemployed individuals is primarily intended to reduce
a. frictional unemployment.
b. seasonal unemployment.
c. structural unemployment.
d. cyclical unemployment.
80.Which of the following creates unemployment by keeping wages above the
equilibrium level?
a. unions but not efficiency wages.
b. efficiency wages, but not unions.
c. neither efficiency wages nor unions.
d. both efficiency wages and unions.
81.Credit card limits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
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82.The Fed can increase the money supply by conducting open market
a. sales and raising the discount rate.
b. sales and lowering the discount rate.
c. purchases and raising the discount rate.
d. purchases and lowering the discount rate.
83.In a 100-percent reserve banking system, if people decided to decrease the amount
of currency they held by increasing the amount they held in checkable deposits
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.
84.The reserve requirement ratio is 10%. Which of the following pair of changes
would both allow a bank to lend out an additional $10,000?
a. the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in
the bank
b. the Fed buys a $10,000 bond from the bank or the Fed lends the bank
$10,000
c. the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the
bank
d. the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000
85.When the Fed decreases the discount rate, banks will
a. borrow more from the Fed and lend more to the public. The money supply
increases.
b. borrow more from the Fed and lend less to the public. The money supply
decreases.
c. borrow less from the Fed and lend more to the public. The money supply
increases.
d. borrow less from the Fed and lend less to the public. The money supply
decreases.
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86.Suppose that in a country people gain more confidence in the banking system and
so hold relatively less currency and more deposits, then bank reserves will
a. decrease and the money supply will eventually decrease.
b. decrease and the money supply will eventually increase.
c. increase and the money supply will eventually decrease.
d. increase and the money supply will eventually increase.
87.If the reserve ratio increased from 10 percent to 20 percent, the money multiplier
would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
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