Question 1
___________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.
a) Stagflation
b) The interest rate effect
c) The foreign price effect
d) Full employment GDP

Question 2
Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save?
a) stagflation
b) depression
c) deflation
d) recession

Question 3
If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:
a) higher profits will induce expanded production.
b) a majority of industries will start running into limits.
c) increase in quantity produced won't be large.
d) the maximum potential GDP will be exceeded.

Question 4
What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?
a) aggregate supply
b) potential GDP
c) GDP deflator
d) AS curve

Question 5
The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?
a) macroeconomic supply will decrease in the short run
b) the economy will experience lower economic growth
c) inflationary pressures will be mild
d) cyclical unemployment will decrease
Chapter 12 Random

Question 6
If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:
a) is producing at its equilibrium point.
b) is producing at its potential GDP.
c) is producing at a point where output is more than potential GDP.
d) is producing at a point where output is less than potential GDP.

Question 7
The equilibrium quantity of labor and the equilibrium wage level decrease when:
a) labor demand shifts to the left, if wages are flexible.
b) labor supply shifts to the left, if wages are flexible.
c) labor supply shifts to the right, if wages are flexible.
d) labor demand shifts to the right, if wages are flexible.

Question 8
According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:
a) Keynesian cross diagram.
b) Keynesian Inflation trade-off model.
c) Keynesian Phillips curve tradeoff.
d) neoclassical expenditure-output model.

Question 9
The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?
a) 100
b) 200
c) 750
d) 50

Question 10
Referring to the diagram, which of the following is a true statement?
a) The increase in output (Q1 to Q2) may come about because of lower levels of taxation.
b) The increase in supply (Q1 to Q2) may come about because of increased money supply.
c) The increase in supply (Q1 to Q2) may result from decreased government spending.
d) The increase in output (Q1 to Q2) may result from increased levels of taxation.

Question 11
If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:
a) both the money multiplier and the supply of money in the economy will decrease.
b) both the money multiplier and the supply of money in the economy will increase.
c) the money multiplier will decrease and the supply of money in the economy will increase.
d) the money multiplier will increase and the supply of money in the economy will decrease.

Question 12
If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:
a) the credit card company's M1 funds.
b) his M1 funds.
c) his M2 funds.
d) the credit card company's M2 funds.

Question 13
Which category of the money supply would you be contributing to if you invest in money market funds?
a) savings deposits
b) M2
c) time deposits
d) M1

Question 14
Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities?
a) $200 million
b) $330 million
c) $20 million
d) $5 million

Question 15
When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.
a) aggregate supply
b) wage levels
c) aggregate demand
d) price levels

Question 16
Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?
a) government focuses more on recession and cyclical unemployment
b) price and wage stickiness is reasonable in the short run
c) upward trend of potential GDP determines the rate of inflation
d) standard of living is ultimately determined by long-term growth

Question 17
According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?
a) innovations relating to banking and finance
b) unpredictable rises and falls in nominal GDP
c) quantity of credit rises above where it otherwise be
d) monetary policy will become inevitably imprecise

Question 18
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:
a) a quantitative easing policy.
b) a expansionary monetary policy.
c) a contractionary monetary policy.
d) a loose monetary policy.

Question 19
When the central bank lowers the reserve requirement on deposits:
a) the money supply increases and interest rates decrease.
b) the money supply decreases and interest rates increase.
c) the money supply and interest rates increase.
d) the money supply and interest rates decrease.

Question 20
The diagram above refers to a private closed economy. In this instance, the equilibrium GDP is:
a) $60 billion.
b) between $60 and $180 billion.
c) $180 billion.
d) $60 billion at all levels