Question 1: 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: 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: 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: 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: 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: 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: 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: How many members can serve on the Board of Governors of the Federal Reserve System?

• Seven
• Nine
• 12
• 14

Question 9: 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: 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: 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: 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: 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: Which of the following products is a leading import of the United States?

• Grains
• Aircraft
• Petroleum
• Generating equipment

Question 15: 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: 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: 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: 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: 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: 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.

Question 21: 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 22: 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 23: 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 24: 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 25: 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 26:

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 27:

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.

Question 28: A purely competitive firm's output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should:

• cut its price and raise its output.
• raise its price and cut output.
• leave price unchanged and raise output.
• leave price unchanged and cut output.

Question 29: Which case below best represents a case of price discrimination?

• An insurance company offers discounts to safe drivers.
• A major airline sells tickets to senior citizens at lower prices than to other passengers.
• A professional baseball team pays two players with identical batting averages different salaries.
• A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.

Question 30: A major reason that firms form a cartel is to:

• reduce the elasticity of demand for the product.
• enlarge the market share for each producer.
• minimize the costs of production.
• maximize joint profits.

Question 31: In the short run:

• a firm cannot vary its output level.
• all factors of production can be varied.
• a firm can change its fixed inputs.
• output is raised or reduced by changing the levels of variable inputs.

Question 32: A recession is a decline in:

• the inflation rate that lasts six months or longer.
• the unemployment rate that lasts six months or longer.
• real GDP that lasts six months or longer.
• potential GDP that lasts six months or longer.

Question 33: The unemployed are those people who:

• do not have jobs.
• are not employed but are seeking work.
• are not working.
• are not in the workforce.

Question 34:  xnbTo avoid multiple counting in national income accounts:

• only final goods and services should be counted.
• intermediate goods and services should be counted.
• both final and intermediate goods and services should be counted.
• primary, intermediate, and final goods and services should be counted.

Question 35: Nominal GDP differs from real GDP because:

• nominal GDP is based on constant prices.
• real GDP is based on current prices.
• real GDP is adjusted for changes in the price level.
• nominal GDP is adjusted for changes in the price level.

Question 36: When the federal government uses taxation and spending actions to stimulate the economy it is conducting:

• fiscal policy.
• incomes policy.
• monetary policy.
• employment policy.

Question 37: Refer to the graph. What combination would most likely cause a shift from AD1 to AD2?

• Increases in taxes and government spending
• Decrease in taxes and increase in government spending
• Increase in taxes and no change in government spending
• Decreases in taxes and government spending

Question 38: Which of the following serves as an automatic stabilizer in the economy?

• Interest rates
• Exchange rates
• Inflation rate
• Progressive income tax

Question 39: The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

• crowding-out lag.
• recognition lag.
• operational lag.
• administrative lag.