An increase in aggregate demand is most likely to be caused by a decrease in 

the wealth of consumers.

consumer and business confidence.

expected returns on investment.

the tax rates on household income.

Question 2. 2. (TCO 5) The long-run aggregate supply curve is 

upward-sloping and becomes steeper at output levels above the full-employment output.

upward-sloping and becomes flatter at output levels above the full-employment output.

horizontal.

vertical.

Question 3. 3. (TCO 5) Which would most likely increase aggregate supply? 

An increase in the prices of imported products

An increase in productivity

A decrease in business subsidies

A decrease in personal taxes

Question 4. 4. (TCO 5) Disinflation refers to a situation where 

price level falls, but the rate of inflation does not.

Price level rises, but the rate of inflation does not.

the rate of inflation falls, but the price level does not.

the rate of inflation rises, but the price level does not.

Question 5. 5. (TCO 6) If a family's MPC is .7, it means that the family is 

operating at the break-even point.

spending seven-tenths of any additional income.

necessarily dissaving.

spending 70 percent of its disposable income.

Question 6. 6. (TCO 7) Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange? 

M1

M2

Neither M1 nor M2

M1 and M2

Question 7. 7. (TCO 7) Which of the following "backs" the value of money in the United States? 

Gold stored in the Federal Reserve Bank of New York

Acceptability of it as a medium of exchange

Willingness of foreign government to hold U.S. dollars

Size of the budget surplus in the U.S. government

Question 8. 8. (TCO 7) How many members can serve on the Board of Governors of the Federal Reserve System? 

Seven

Nine

12

14

Question 9. 9. (TCO 7) Which group is responsible for the policy of changing the money supply? 

Federal Open Market Committee

Office of Management and Budget

Thrift Advisory Council

Federal Advisory Council

Question 10. 10. (TCO 7) Other things being equal, an expansion of commercial bank lending 

changes the composition, but not the size, of the money supply.

is desirable during a period of demand-pull inflation.

reduces the money supply.

increases the money supply.

Question 11. 11. (TCO 7) During the financial crisis of 2007-2008, the FDIC increased deposit insurance coverage from 

$50,000 to $100,000 per account.

$100,000 to $250,000 per account.

$200,000 to $500,000 per account.

$500,000 to $1,000,000 per account.

Question 12. 12. (TCO 7) Which monetary policy tool was created in response to the financial crisis of 2007-2008? 

Discount rate

Term auction facility

Target federal funds rate

Open market operations

Question 13. 13. (TCO 7) The Federal Reserve could reduce the money supply by 

selling government bonds in the open market.

buying government bonds in the open market.

operating the term auction facility.

reducing the discount rate.

Question 14. 14. (TCO 8) Which of the following products is a leading import of the United States? 

Grains

Aircraft

Petroleum

Generating equipment

Question 15. 15. (TCO 8) The principal concept behind comparative advantage is that a nation should 

maximize its volume of trade with other nations.

use tariffs and quotas to protect the production of vital products for the nation.

concentrate production on those products for which it has the lowest domestic opportunity cost.

strive to be self-sufficient in the production of essential goods and services.

Question 16. 16. (TCO 8) If a nation imposes a tariff on an imported product, then the nation will experience a(n) 

decrease in total supply and an increase in the price of the product.

decrease in demand and a decrease in the price of the product.

decrease in supply of, and an increase in demand for, the product.

increase in supply of, and a decrease in demand for, the product.

Question 17. 17. (TCO 8) A key difference between import quotas and voluntary export restraints (VERs) is that the 

domestic government administers the former, whereas the foreign government administers the latter.

foreign government administers the former, whereas the domestic government administers the latter.

one is a tax, whereas the other is a quantity limit.

one raises the price of the imported product involved, whereas the other one does not.

Question 18. 18. (TCO 8) Tariffs and import quotas would benefit the following groups, except 

consumers of the product.

domestic producers of the product.

workers in domestic firms producing the product.

the government of the importing country.

Question 19. 19. (TCO 8) A major goal of the World Trade Organization is to 

increase the protection of producers against foreign trade competition.

encourage bilateral trade agreements between nations.

liberalize international trade among nations.

maximize tariff revenue for governments.

Question 20. 20. (TCO 9) French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be 

supplying dollars and also supplying euros in the foreign exchange market.

demanding dollars and also demanding euros in the foreign exchange market.

supplying dollars and demanding euros in the foreign exchange market.

supplying euros and demanding dollars in the foreign exchange market.

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on 

trade in services.

net international transfers.

financial accounts.

capital accounts.

Question 2. 2. (TCO 9) A trade deficit means a net 

inflow of payments for goods and services.

outflow of goods and services.

inflow of goods and services.

excess of exports over imports.

Question 3. 3. (TCO 9) If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is 

$0.44.

$0.23.

$2.25.

$2.00.

Question 4. 4. (TCO 9) When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has 

depreciated.

appreciated.

inflated.

deflated.

Question 5. 5. (TCO 9) The monetary system for conducting international trade is usually described as a system of 

fixed exchange rates.

freely floating exchange rates.

a managed gold standard.

managed floating exchange rates.

Question 6. 6. 

(TCO 8) a) Explain four problems with the argument that trade protection is needed to protect American jobs.

b) Describe the economic reasons why businesses use offshoring.

Question 7. 7. 

(TCO 6) a) Explain the tools used to pursue expansionary and contractionary fiscal policy. During which phases of the business cycle would each be appropriate

b) Explain what is meant by a built-in stabilizer and give two examples. 

Explain the aspects of expansionary and contractionary fiscal policy. During which phases of the business cycle would each be appropriate?