Multiple choice problems on selected topics in macroeconomics and international trade and exchange rates, imports and exports.

1. Which of the following is a long-run macroeconomic policy goal?

a. reduce unemployment

b. increase inflation

c. promote steady growth

d. eliminate recession

2. Real GDP is

a. the best measure we have for total production, though it does have some flaws.

b. the worst measure we have of total production because it misses much of what is produced.

c. the best measure we have for total production because it doesn't miss anything.

d. ignored as a measure of total production because it is does not take account of inflation.

3. If the CPI was 132.5 at the end of 2003 and 140.2 at the end of 2004, the inflation rate over these two years was

a. 7.7 percent.

b. 5.4 percent.

c. 4.4 percent.

d. 5.8 percent.

4. If our exports are $1.2 billion and our imports are $1.7 billion,

a. the United States is lending to the rest of the world.

b. U.S. national saving is too high.

c. the United States is borrowing from the rest of the world.

d. U.S. investment must decrease.

5. In the expenditure approach to GDP, the largest component is
a. government purchases.
b. personal consumption expenditures.
c. gross private domestic investment.
d. net exports.

6. If a larger fraction of the adult population is working, household production

a. counted in real GDP increases.

b. not counted in real GDP increases.

c. counted in real GDP decreases.

d. not counted in real GDP decreases.

7. Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ____ equals ____.

a. unemployment rate; 25/100 x 100

b. unemployment rate; 25/125 x 100

c. labor force; 75

d. labor force; 25/100 x 100

8. Cyclical unemployment

a. is due mainly to job leavers.

b. may increase or decrease during an expansion.

c. occurs when technology improvements change job requirements.

d. fluctuates over the business cycle.

9. If the CPI was 132.5 at the end of 2004 and 137.5 at the end of 2005, the inflation rate over these two years was

a. 3.6 percent.

b. 3.8 percent.

c. 5.0 percent.

d. None of the above answers is correct.

10. The technique currently used to find out the CPI implicitly assumes that over time consumers buy

a. relatively more of goods whose relative prices are rising.

b. relatively less of goods whose relative prices are rising.

c. the same relative quantities of goods as in a base year.

d. goods and services whose quality improves at the rate of growth of real income.

11. The supply of real GDP is a function of

a. the total expenditures of consumers, investors and government.

b. the sum of wages, salaries, corporate profits, rents and interest.

c. only the state of technology.

d. the quantities of labor, capital and the state of technology.

12. In short-run macroeconomic equilibrium

a. real GDP equals potential GDP and aggregate demand determines the price level.

b. the price level is fixed and short-run aggregate supply determines real GDP.

c. real GDP and the price level are determined by short-run aggregate supply and aggregate demand.

d. real GDP is less than potential GDP.

13. ____ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.

a. Keynesian

b. Monetarist

c. Classical

d. All

14. The classical dichotomy applies when the economy only when the economy

a. is at full employment.

b. has less than full employment.

c. is in a recession.

d. has more than full employment.

15. Because the leisure-real GDP production possibilities frontier is bowed outward, then

a. each additional unit of real GDP costs a decreasing amount of forgone leisure.

b. as more real GDP is produced, increasingly more productive labor is being used.

c. the marginal product of labor is increasing as real GDP increases.

d. the slope of the economy's production function decreases as real GDP increases.

16. Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded

a. increases.

b. decreases.

c. does not change because there is no change in the money wage rate.

d. increases only if the price level also decreases.

17. Convergence of the income gap has been most dramatic between

a. Hong Kong and the United States.

b. the Central European countries and the United States.

c. Africa and the United States.

d. South America and the United States.

18. Which of the following statements regarding human capital is incorrect?

a. Human capital is the accumulated skill and knowledge of human beings.

b. Education is the only vehicle for the creation of human capital because training simply reinforces what has already beenlearned.

c. The accumulation of human capital is the source of both increased productivity and technological advance.

d. Writing and mathematics, the most basic of human skills, are crucial elements in economic progress.

19. If Y = real GDP, and L, K and T represent the quantities of labor,capital and technology respectively, then the most appropriate representation of the aggregate production function is

a. L = F(K, Y, T).

b. Y = F(T, K).

c. Y = F(K, T, L).

d. T = F(Y, T, L).

20. A central proposition of the new growth theory is that

a. growth will cease but prosperity will persist.

b. knowledge is not subject to diminishing returns.

c. government direction and oversight is necessary for consistent growth.

d. growth is often just an illusion fostered by growth accounting.

21. Given the list of assets below, which is the most liquid?

a. $500 worth of General Motors common stock.

b. $500 worth of General Motors bonds.

c. a $500 traveler's check.

d. a one-ounce gold coin.

22. Which of the following statements concerning commercial banks is true?

a. Banks need to maintain cash reserves equal to their deposits.

b. Most banks maintain cash reserves equal to a fraction of deposits.

c. Cash reserves earn the highest rate of return of any asset for a bank.

d. Since the advent of the Federal Reserve, banks do not need to maintain cash reserves.

23. You withdraw $2,000 from your account. Your bank has a desired reserve ratio of 20 percent. This transaction, by itself, will directly reduce

a. the quantity of money by $1,600.

b. deposits by $1,600.

c. the quantity of money by $2,000.

d. deposits by $2,000.

24. Suppose you hold $50 to buy groceries weekly and then the price of groceries increases by 5 percent. To be able to buy the same amount of groceries, what must happen to your nominal money holdings?

a. They must increase by $5.

b. They can decrease by $5.

c. They must increase by $2.50.

d. They must increase, but the amount of the increase is different than the above answers.

25. If the Fed carries out an open market operation and buys U.S. government securities, the interest rate

a. falls and the quantity of money increases.

b. rises and the quantity of money increases.

c. falls and the quantity of money decreases.

d. rises and the quantity of money decreases.