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You can shop here, click on the link which is located below http://www.fortuneofstudents.com/eco-212-final-exam-3-100-correct/ ECO 212 Final Exam (3) 100% Correct 1.

Economics deals primarily with the concept of

a.

scarcity.

b.

poverty.

c.

change.

d.

power.

2. Which of the following products would be considered scarce? a.

golf clubs

b.

Picasso paintings

c.

apples

d.

All of the above are correct.

3. Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? a.

Melissa can attend the concert only if she takes her sister with her.

b.

Greg is hungry and homeless.

c.

Brian must repair the tire on his bike before he can ride it to class.

d.

Kendra must decide between going to Colorado or Cancun for spring break.

4. Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is a.

the $24 she earns working.

b.

the $24 minus the enjoyment she would have received from watching the video.

c.

the enjoyment she would have received had she watched the video.

d.

nothing, since she would have received less than $24 of enjoyment from the video.

5. For which of the following individuals would the opportunity cost of going to college be highest?


a. a promising young mathematician who will command a high salary once she earns her college degree b.

a student with average grades who has never held a job

c. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree d. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball 6.

Economic models

a.

cannot be useful if they are based on false assumptions.

b.

were once thought to be useful, but that is no longer true.

c.

must incorporate all aspects of the economy if those models are to be useful.

d.

can be useful, even if they are not particularly realistic.

7. In a circular-flow diagram, a.

taxes flow from households to firms, and transfer payments flow from firms to households.

b. income payments flow from firms to households, and sales revenue flows from households to firms. c.

resources flow from firms to households, and goods and services flow from households to firms.

d.

inputs and outputs flow in the same direction as the flow of dollars, from firms to households.

8. Just like models constructed in other areas of science, economic models a.

incorporate assumptions that contradict reality.

b.

incorporate all details about the real world.

c.

complicate reality.

d.

All of the above are correct.

9. When studying the effects of changes in public policy, economists believe that a.

it is important to distinguish between the short run and the long run.

b. the assumptions used in studying those effects should be the same for the short run as for the long run.


c. the short-run effects of those changes are always more beneficial to society than are the longrun effects. d. the long-run effects of those changes are always more beneficial to society than are the shortrun effects. 10. The decision of which assumptions to make is a.

an easy decision for an economist, but a difficult decision for a physicist or a chemist.

b.

not a particularly important decision for an economist.

c.

usually regarded as an art in scientific thinking.

d.

usually regarded as the easiest part of the scientific method.

11.Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes vases, but Regan is better at producing both. In this case, trade could a.

benefit both Jayson and Regan.

b.

benefit Jayson, but not Regan.

c.

benefit Regan, but not Jayson.

d.

benefit neither Jayson nor Regan.

12 A production possibilities frontier will be a straight line if a. increasing the production of one good by x units entails no opportunity cost in terms of the other good. b. increasing the production of one good by x units entails a constant opportunity cost in terms of the other good. c.

the economy is producing efficiently.

d.

the economy is engaged in trade with at least one other economy.

13.The difference between production possibilities frontiers that are bowed out and those that are straight lines is that a. bowed-out production possibilities frontiers apply to economies that face tradeoffs, whereas straight-line production possibilities frontiers apply to economies that do not face tradeoffs. b. bowed-out production possibilities frontiers apply to economies in which resources are not specialized, whereas straight-line production possibilities frontiers apply to economies in which resources are specialized. c. bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost. d. straight-line production possibilities frontiers illustrate real-world conditions, whereas bowedout production possibilities frontiers illustrate more simplistic assumptions.


14.

Which of the following statements is not correct?

a.

Trade allows for specialization.

b.

Trade has the potential to benefit all nations.

c.

Trade allows nations to consume outside of their production possibilities curves.

d.

Absolute advantage is the driving force of specialization.

Figure 3-1 …. 15. Refer to Figure 3-1. Assume Cliff and Paul were both producing wheat and corn, and each person was dividing his time equally between the two. Then each decides to specialize in the product in which he has a comparative advantage. Furthermore, they agree to trade 3 bushels of wheat for 3 bushels of corn. As a result of these new arrangements, Cliff is able to consume a. 4 bushels of wheat and 3 bushels of corn, and this point lies on Cliff’s production possibilities frontier. b. 3 bushels of wheat and 3 bushels of corn, and this point lies outside of Cliff’s production possibilities frontier. c. 3 bushels of wheat and 2 bushels of corn, and this point lies on Cliff’s production possibilities frontier. d. 4 bushels of wheat and 3 bushels of corn, and this point lies outside of Cliff’s production possibilities frontier. 16.

A market is always characterized by

a.

a high degree of organization.

b. an individual or small group of individuals who set the price of the product for all buyers and sellers. c.

the presence of buyers and sellers.

d.

All of the above are correct.

17.

In a competitive market,

a.

only a few sellers sell the same product.

b.

each seller has a limited degree of control over the price of his product.

c.

if one buyer chooses to purchase a large quantity of the product, the price will rise.

d.

if one seller withholds his product from the market, prices will rise.

18.

In a competitive market, each seller has limited control over the price of his product because


a.

other sellers are offering similar products.

b.

buyers exert more control over the price than do sellers.

c.

these markets are highly regulated by government.

d. sellers usually agree to set a common price that will allow each seller to earn a comfortable profit. 19.

Most markets in the economy are

a.

markets in which sellers, rather than buyers, control the price of the product.

b.

markets in which buyers, rather than sellers, control the price of the product.

c. markets in which each seller of the product is aware that there are few, if any, similar products offered by other sellers. d.

highly competitive.

20.

For a competitive market, which of the following statements is correct?

a.

A seller can always increase her profit by raising the price of her product.

b.

If a seller charges more than the going price, buyers will go elsewhere to make their purchases.

c.

A seller often charges less than the going price to increase sales and profit.

d. A single buyer can influence the price of the product, but only when purchasing from several sellers in a short period of time. 21. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is a.

2.00.

b.

1.55.

c.

1.00.

d.

0.64.

22.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

a.

0.4 percent decrease in the quantity demanded.

b.

2.5 percent decrease in the quantity demanded.

c.

4 percent decrease in the quantity demanded.


d.

40 percent decrease in the quantity demanded.

23.

If the price elasticity of demand for a good is 1.65, then a 3 percent decrease in price results in a

a.

0.55 percent increase in the quantity demanded.

b.

1.82 percent increase in the quantity demanded.

c.

4.95 percent increase in the quantity demanded.

d.

5.55 percent increase in the quantity demanded.

24. If the price elasticity of demand for a good is 0.94, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded? a.

a 0.235 percent increase in the price of the good

b.

a 2.350 percent increase in the price of the good

c.

a 3.760 percent increase in the price of the good

d.

a 4.255 percent increase in the price of the good

25. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.78. Which of the following events is consistent with a 4.68 percent decrease in the quantity of the good demanded? a.

a 3.65 increase in the price of the good

b.

a 16.67 percent increase in the price of the good

c.

an increase in the price of the good from $48.00 to $50.97

d.

an increase in the price of the good from $65.00 to $66.98

26. corn,

When a nation first begins to trade with other countries and the nation becomes an exporter of

a. this is an indication that the world price of corn exceeds the nation’s domestic price of corn in the absence of trade. b.

this is an indication that the nation has a comparative advantage in producing corn.

c. the nation’s consumers of corn become worse off and the nation’s producers of corn become better off. d.

All of the above are correct.

27. When a nation first begins to trade with other countries and the nation becomes an importer of soybeans, a. this is an indication that the world price of soybeans exceeds the nation’s domestic price of soybeans in the absence of trade. b.

this is an indication that the nation has a comparative advantage in producing soybeans.


c. the nation’s producers of soybeans become worse off and the nation’s consumers of soybeans become better off. d.

All of the above are correct.

28.

Trade raises the economic well-being of a nation in the sense that

a.

the gains of the winners exceed the losses of the losers.

b.

everyone in an economy gains from trade.

c. since countries can choose what products to trade, they will pick those products that are most beneficial to society. d.

the nation joins the international community when it begins to engage in trade.

29.

When a country allows trade and becomes an exporter of a good,

a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good. b. the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good. c. the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good. d. the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good. 30.

When a country allows trade and becomes an importer of steel,

a. steel.

the losses of the domestic producers of steel exceed the gains of the domestic consumers of

b. steel.

the losses of the domestic consumers of steel exceed the gains of the domestic producers of

c. steel.

the gains of the domestic producers of steel exceed the losses of the domestic consumers of

d. steel.

the gains of the domestic consumers of steel exceed the losses of the domestic producers of

31.

Accounting profit is equal to

a.

marginal revenue minus marginal cost.

b.

total revenue minus the explicit cost of producing goods and services.

c.

total revenue minus the opportunity cost of producing goods and services.

d.

average revenue minus the average cost of producing the last unit of a good or service.

32.

Economic profit


a.

will never exceed accounting profit.

b.

is most often equal to accounting profit.

c.

is always at least as large as accounting profit.

d.

is a less complete measure of profitability than accounting profit.

33. To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from a.

an innate love for the type of business that he or she starts.

b.

a desire to earn a profit.

c.

an altruistic desire to provide the world with a good product.

d.

All of the above are correct.

34. When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a.

The cost of something is what you give up to get it.

b.

A country's standard of living depends on its ability to produce goods and services.

c.

Prices rise when the government prints too much money.

d.

Governments can sometimes improve market outcomes.

35. Gordon is a senior majoring in computer network development at Smart State University. While he has been attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e-mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude: a. Gordon should increase the number of hours he works for the Economics Department to make it comparable to his consulting business income. b. Gordon is obviously not maximizing his well-being if he continues to work for the Economics Department. c. If Gordon chooses one hour at the beach with his friends rather than spend one more hour with a consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach. d.

Both b and c are correct

36.

A market is competitive if

(i)

firms have the flexibility to price their own product.

(ii)

each buyer is small compared to the market.

(iii)

each seller is small compared to the market.


a.

(i) and (ii) only

b.

(i) and (iii) only

c.

(ii) and (iii) only

d.

All of the above are correct.

37.

When a firm has little ability to influence market prices it is said to be in

a.

a competitive market.

b.

a strategic market.

c.

a thin market.

d.

a power market.

38.

In a competitive market, the actions of any single buyer or seller will

a.

have a negligible impact on the market price.

b.

have little effect on overall production but will ultimately change final product price.

c.

cause a noticeable change in overall production and a change in final product price.

d.

adversely affect the profitability of more than one firm in the market.

Table 14-1


39. Refer to Table 14-1. The price and quantity relationship in the table is most likely that faced by a firm in a a.

monopoly.

b.

concentrated market.

c.

competitive market.

d.

strategic market.

40.

Refer to Table 14-1. Over which range of output is average revenue equal to price?

a.

1 to 5

b.

3 to 7

c.

5 to 9

d.

Average revenue is equal to price over the whole range of output.

41. Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true? a.

Meatball prices will be less than marginal cost.

b.

Meatball prices will equal marginal cost.

c.

Meatball prices will exceed marginal cost.

d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs. 42.

A monopoly's marginal cost will

a.

be less than its average fixed cost.

b.

be less than the price per unit of its product.

c.

exceed its marginal revenue.

d.

equal its average total cost.

43.

Which of the following statements is (are) true of a monopoly?

(i)

A monopoly has the ability to set the price of its product at whatever level it desires.

(ii)

A monopoly's total revenue will always increase when it increases the price of its product.

(iii)

A monopoly can earn unlimited profits.

a.

(i) only


b.

(ii) only

c.

(i) and (ii)

d.

(ii) and (iii)

44.. Young Johnny inherited the only local cable TV company in town after his father passed away. The company is completely unregulated by the government and is therefore free to operate as it wishes. Assuming that Johnny understands the true power of his new monopoly, he is probably most excited about which of the following statements? (i)

He will be able to set the price of cable TV service at whatever level he wishes.

(ii)

The customers will be forced to purchase cable TV service at whatever price he wants to set.

(iii)

He will be able to achieve any profit level that he desires.

a.

(i) only

b.

(ii) only

c.

(i) and (iii)

d.

All of the above are correct.

45.

Which of the following is an example of a barrier to entry?

(i)

A key resource is owned by a single firm.

(ii) The costs of production make a single producer more efficient than a large number of producers. (iii)

The government has given the existing monopoly the exclusive right to produce the good.

a.

(i) and (ii)

b.

(ii) and (iii)

c.

(i) only

d.

All of the above are examples of barriers to entry.

46.

An oligopoly is a market in which

a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b.

firms are price takers.

c.

the actions of one seller in the market have no impact on the other sellers' profits.

d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.


47. The general term for market structures that fall somewhere in-between monopoly and perfect competition is a.

incomplete markets.

b.

imperfectly competitive markets.

c.

oligopoly markets.

d.

monopolistically competitive markets.

48.

In a market that is characterized by imperfect competition,

a.

firms are price takers.

b.

there are always a large number of firms.

c.

there are at least a few firms that compete with one another.

d.

the actions of one firm in the market never have any impact on the other firms' profits.

49.

There are two types of imperfectly competitive markets:

a.

monopoly and monopolistic competition.

b.

monopoly and oligopoly.

c.

monopolistic competition and oligopoly.

d.

monopolistic competition and cartels.

50.

Monopolistically competitive firms are typically characterized by

a.

many firms selling products that are similar, but not identical.

b.

many firms selling identical products.

c.

a few firms selling products that are similar, but not identical.

d.

a few firms selling highly different products.

51. Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being? a.

the unemployment rate

b.

the inflation rate

c.

gross domestic product

d.

the trade deficit

52.

Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the unemployment rate.


b. Money continuously flows from households to government and then back to households, and GDP measures this flow of money. c.

GDP is to a nation’s economy as household income is to a household.

d.

All of the above are correct.

53.

Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. b. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money. c.

GDP is generally regarded as the best single measure of a society’s economic well-being.

d.

All of the above are correct.

54.

If a nation’s GDP rises, then it must be the case that the nation’s

a.

income and expenditure both rise.

b.

income and saving both rise.

c.

income rises, but expenditure may rise or fall.

d.

saving rises, but income may rise or fall.

55.

Because every transaction has a buyer and a seller,

a.

GDP is more closely associated with a nation’s income than it is with a nation’s expenditure.

b.

every transaction contributes equally to an economy’s income and to its expenditure.

c. the number of firms must be equal to the number of households in a simple circular-flow diagram. d.

firms’ profits are necessarily zero in a simple circular-flow diagram.

56. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 300 times as much as Babe Ruth earned in 1931. However, prices also have risen since 1931. We can conclude that a.

the best baseball players today are about 300 times better off than Babe Ruth was in 1931.

b.

because prices have risen also, the standard of living of baseball stars hasn't changed since 1931.


c. one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. d. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931. 57. When the consumer price index rises, the typical family a.

has to spend more dollars to maintain the same standard of living.

b.

can spend fewer dollars to maintain the same standard of living.

c.

finds that its standard of living is not affected.

d.

can offset the effects of rising prices by saving more.

58.

The consumer price index is used to

a.

track changes in the level of wholesale prices in the economy.

b.

monitor changes in the cost of living.

c.

monitor changes in the level of real GDP.

d.

track changes in the stock market.

59.

The consumer price index is used to

a.

differentiate gross national product from net national product.

b.

turn dollar figures into meaningful measures of purchasing power.

c.

characterize the types of goods and services that consumers purchase.

d.

measure the quantity of goods and services that the economy produces.

60.

The term inflation is used to describe a situation in which

a.

the overall level of prices in the economy is increasing.

b.

incomes in the economy are increasing.

c.

stock-market prices are rising.

d.

the economy is growing rapidly.

61.

Ted is working part time. Alice is on temporary layoff. Who is counted as employed by the BLS?

a.

only Ted

b.

only Alice

c.

both Ted and Alice

d.

neither Ted nor Alice


62. 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

63. Assuming everyone in the question below is in the adult population, which of the following is not correct? a.

Elmo works part time as a baby sitter. The BLS counts him as employed and in the labor force.

b. Anna is a full-time student not looking for a job. The BLS counts her as unemployed and in the labor force. c.

Jim is on temporary layoff. The BLS counts him as unemployed and part of the labor force.

d. Liz is seeking work, but has not found it. The BLS counts her as unemployed and in the labor force. 64.

Who of the following would be counted as unemployed according to official statistics?

a.

Mary, who is waiting for her new job to start

b.

Karen, who worked only 35 hours last week

c.

Shasta, who neither has a job nor is looking for one

d.

None of the above would be counted as unemployed.

65.

Which of the following would be counted as unemployed according to official statistics?

a.

George, a full-time student who is not looking for work

b.

Jenna, who is on temporary layoff

c.

Larry, who has retired and is not looking for work

d.

All of the above would be counted as unemployed.

66.

Which of the following is included in M2 but not in M1?

a.

demand deposits

b.

corporate bonds

c.

large time deposits

d.

money market mutual funds

67.

Which of the following isn’t included in either M1 or M2?


a.

U.S. Treasury bills

b.

small time deposits

c.

demand deposits

d.

money market mutual funds

68.

The Federal Open Market Committee is made up of

a.

5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.

b.

5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.

c.

12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.

d.

12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.

69.

Which of the following is not always a voting member of the FOMC?

a.

the president of the New York Federal Reserve District Bank

b.

the Chairman of the Board of Governors

c.

a member of the Board of Governors other than the chair

d.

the president of the Boston Federal Reserve District Bank

70.

Monetary policy affects employment

a.

only in the long run.

b.

only in the short run.

c.

in both the long run and the short run.

d.

in neither the long run nor the short run.

71. As the price level decreases, the value of money a.

increases, so people want to hold more of it.


b.

increases, so people want to hold less of it.

c.

decreases, so people want to hold more of it.

d.

decreases, so people want to hold less of it.

72.

An increase in the price level makes the value of money

a.

increase, so people want to hold more of it.

b.

increase, so people want to hold less of it.

c.

decrease, so people want to hold more of it.

d.

decrease, so people want to hold less of it.

73. 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.

74. When the money market is drawn with the value of money on the vertical axis, if the value of money is below the equilibrium level, a.

the price level will rise.

b.

the value of money will rise.

c.

money demand will shift left.

d.

money demand will shift right.

75. Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is a.

a shortage that will increase spending.

b.

a shortage that will reduce spending.

c.

a surplus that will increase spending.

d.

a surplus that will reduce spending.

76.

Which of the following is correct?

a. U.S. exports as a percentage of GDP have about doubled over the last 50 years. The U.S. currently has a trade surplus. b. U.S. exports as a percentage of GDP have about doubled over the last 50 years. The U.S. currently has a trade deficit.


c. U.S. exports as a percentage of GDP have increased, but have not nearly doubled over the last 50 years. The U.S. currently has a trade surplus. d. U.S. exports as a percentage of GDP have increased, but have not nearly doubled over the last 50 years. The U.S. currently has a trade deficit. 77. Suppose that more Chinese decide to vacation in the U.S. and that the Chinese purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases, a. the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow. b. the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow. c. the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow. d. the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow. 78.

When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow

a.

increases because the foreign company makes a portfolio investment in the U.S.

b.

declines because the foreign company makes a portfolio investment in the U.S.

c.

increases because the foreign company makes a direct investment in capital in the U.S.

d.

declines because the foreign company makes a direct investment in capital in the U.S.

79.

When Microsoft establishes a distribution center in France, U.S. net capital outflow

a.

increases because Microsoft makes a portfolio investment in France.

b.

decreases because Microsoft makes a portfolio investment in France.

c.

increases because Microsoft makes a direct investment in capital in France.

d.

decreases because Microsoft makes a direct investment in capital France.

80. When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow a.

increases because an American company makes a portfolio investment in Germany.

b.

declines because an American company makes a portfolio investment in Germany.

c.

increases because an American company makes a direct investment in Germany.

d.

declines because an American company makes a direct investment in Germany.


81. U.S. corporation Well’s Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. a. The borrowing for the well in the U.S. and the well in Venezuela both count as part of the demand for loanable funds in the U.S. market. b. Neither the borrowing for the well in the U.S. nor the well in Venezuela count as part of the demand for loanable funds in the U.S. market. c. The borrowing for the well in the U.S. counts as part of the demand for loanable funds in the U.S. The borrowing for the well in Venezuela does not count as part of the demand for loanable funds in the U.S. market. d. The borrowing for the well in Venezuela counts as part of the demand for loanable funds in the U.S. The borrowing for the well in the US. does not counts as part of the demand for loanable funds in the U.S. market. 82.

An increase in the U.S. real interest rate induces

a.

Americans to buy more foreign assets, which increases U.S. net capital outflow.

b.

Americans to buy more foreign assets, which reduces U.S. net capital outflow.

c.

foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.

d.

foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

83.

In an open economy the supply of loanable funds comes from

a.

national saving. Demand comes from only domestic investment.

b.

national saving. Demand comes from domestic investment and net capital outflow.

c.

Only net capital outflow. Demand for loanable funds comes from national saving.

d. domestic investment and net capital outflow. Demand for loanable funds comes from national saving. 84.

If the quantity of loanable funds supplied is greater than the quantity demanded, then

a.

there is a shortage of loanable funds and the interest rate will fall.

b.

there is a shortage of loanable funds and the interest rate will rise.

c.

there is a surplus of loanable funds and the interest rate will fall.

d.

there is a surplus of loanable funds and the interest rate will rise.

85.

If there is a surplus of loanable funds, the quantity demanded is

a.

greater than the quantity supplied and the interest rate will rise.

b.

greater than the quantity supplied and the interest rate will fall.

c.

less than the quantity supplied and the interest rate will rise.


d.

less than the quantity supplied and the interest rate will fall.

86.

To say that money is a veil means that

a. while nominal variables are the first thing we may observe about an economy, what’s important are the real variables and the forces that determine them. b.

money is the principal medium of exchange in most economies.

c. the primary determinant of short-run economic fluctuations is not real variables, but rather changes in the money supply. d. in the long run money is of no importance to the determination of either real or nominal variables. 87.

Most economists believe that after a few years, changes in the money supply change

a.

only nominal variables, but not real variables.

b.

only real variables, but not nominal variables.

c.

neither nominal nor real variables.

d.

both nominal and real variables.

88. Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes a.

both the short run and the long run.

b.

the short run, but not the long run.

c.

the long run, but not the short run.

d.

neither the long run nor the short run.

89.

The model of aggregate demand and aggregate supply explains the relationship between

a.

the price and quantity of a particular good.

b.

unemployment and output.

c.

wages and employment.

d.

real GDP and the price level.

90.

Other things the same, as the price level falls,

a.

the money supply falls.

b.

interest rates rise.

c.

a dollar buys more domestic goods.

d.

the aggregate demand curve shifts right.


91. Fiscal policy affects the economy a.

only in the short run.

b.

only in the long run.

c.

in both the short and long run.

d.

in neither the short nor long run.

92.

According to the theory of liquidity preference, the money supply

a.

and money demand are positively related to the interest rate.

b.

and money demand are negatively related to the interest rate.

c. rate.

is negatively related to the interest rate while money demand is positively related to the interest

d. rate.

is independent of the interest rate, while money demand is negatively related to the interest

93. According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes a.

the interest rate to fall so aggregate demand shifts right.

b.

the interest rate to fall so aggregate demand shifts left.

c.

the interest rate to rise so aggregate demand shifts right.

d.

the interest rate to rise so aggregate demand shifts left.

For the following questions, consult the diagram below: Figure 34-1


... 94.

Refer to Figure 34-1. If the current interest rate is 2 percent,

a.

there is excess money supply.

b.

people will sell more bonds, which drives interest rates up.

c.

as the money market moves to equilibrium, people will buy more goods.

d.

All of the above are correct.

95.

Refer to Figure 34-1. There is excess money demand at an interest rate of

a.

2 percent.

b.

3 percent.

c.

4 percent.

d.

None of the above is correct.

96.

In the long run,

a.

the natural rate of unemployment depends primarily on the level of aggregate demand.

b.

inflation depends primarily upon the money supply growth rate.

c.

there is a tradeoff between the inflation rate and the natural rate of unemployment.

d.

All of the above are correct.

97.

If the government raises government expenditures, in the short run, prices

a.

rise and unemployment falls.

b.

fall and unemployment rises.

c.

and unemployment rise.

d.

and unemployment fall.

98.

If the central bank increases the money supply, in the short run, prices

a.

rise and unemployment falls.

b.

fall and unemployment rises.

c.

and unemployment rise.

d.

and unemployment fall.

99. If aggregate demand shifts because of a wave irrational exuberance, those who favor lean against the wind policy would advocate the a.

federal reserve increase the money supply or the government increase taxes.


b.

federal reserve increase the money supply or the government decrease taxes.

c.

federal reserve decrease the money supply or the government increase taxes.

d.

federal reserve decrease the money supply or the government decrease taxes.

100. President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model a.

both the tax cut and the increase in government expenditures would tend to increase output.

b.

only the tax cut would tend to increase output.

c.

only the increase in government expenditures would tend to increase output.

d.

neither the tax cut nor the increase in government expenditures would tend to increase output.

________________________________________

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