Multiple choice questions
Answer the following 24 multiple choice questions.
Please indicate your answer by either highlighting in green or Bolding the correct answer (if you don't have the Highlight command on your Word menu, right click in the menu area and add a check mark next to either the Formatting or Drawing toolbars).
1. Which of the following is a macroeconomic concern?
a. The wage rates of electricians in Kansas City.
b. The effects of agricultural price supports on the income of farmers.
c. How profits are maximized by a firm.
d. The causes of unemployment in the United States.
2. Which of the following is a microeconomic concern?
a. Whether Microsoft is a monopoly or not.
b. Whether a new governmental policy is inflationary or not.
c. The effect that a new "police action" such as in Afganistan will have on national income.
d. Whether government can implement a policy that will eliminate unemployment.
3. Regarding tariffs and quotas:
a. domestic producers prefer quotas to tariffs because the quota raises the price of an imported good and tariffs do not.
b. quotas on imported automobiles cost jobs in the U.S. automobile industry, but result in lower prices for consumers.
c. a quota is a quantity limitation on imported goods but a tariff is a tax on imported goods.
d. governments prefer quotas to tariffs because quotas provide additional tax revenues to government.
4. A tariff or quota imposed by the U.S. on imported steel will:
a. increase the supply of steel and decrease its price in the U.S.
b. increase the quantity of steel imported in the U.S.
c. benefit U.S. consumers of steel but hurt U.S. steel producers and steel workers.
d. increase the demand for U.S.-made steel and increase its price.
5. Which of the following statements concerning business cycles is true?
a. When unemployment falls, inflation usually falls.
b. The target rate of unemployment is that associated with an accelerating rate of inflation.
c. Since the Great Depression, government has taken a more laissez-faire policy approach toward business cycles.
d. Officially, a recession exists only after there has been a 6-month or 2-quarter consecutive decline in real GDP.
6. The business cycle follows the following pattern:
a. expansion phase, trough, contraction phase, peak.
b. peak, expansion phase, contraction phase, trough.
c. contraction phase, expansion phase, peak, trough.
d. trough, expansion phase, peak, contraction phase.
7. The target rate of unemployment:
a. explains cyclical unemployment patterns.
b. is the rate of unemployment that the economy cannot go below without causing an increase in inflation.
c. has been a constant 6 to 7 percent for several decades.
d. is the rate of unemployment that exists when there is zero inflation.
8. GDP is:
a. the total market value of all final goods and services produced in an economy in a one-year period.
b. our only measure of a nation's social well being.
c. a measure of the economic activity of the citizens and businesses of a country; GNP measures the economy activity that occurs within a nation's borders.
d. equal to C + I + G + (M - X).
9. Which of the following would not cause America's GDP to increase?
a. Japan buys more wheat from the U.S.
b. The federal government spends more on ships for the Navy.
c. Businesses spend more on capital.
d. Americans buy more Mercedes cars from Germany.
10. The amplification of initial changes in expenditures is called:
a. The wealth effect.
b. The interest rate effect.
c. The international effect.
d. The multiplier effect.
11. If an economy is at equilibrium at potential output and the AD curve shifts out, the economy will be in:
a. an inflationary gap and eventually the SAS curve will shift down.
b. a recessionary gap and the LAS curve will shift in.
c. a recessionary gap and the LAS curve will shift down.
d. an inflationary gap and eventually the SAS curve will shift up.
12. Which of the following would most likely cause a recession?
a. Government spending increases and taxes are reduced.
b. Imports rise and exports fall.
c. An increase in consumer confidence and expenditures spending rises.
d. Interest rates fall and investment spending increases.
13. The required reserves of a bank:
a. is calculated by multiplying the required reserve ratio by the bank's demand deposit liabilities.
b. is determined by the Office of the President.
c. represents an amount of money that the bank can loan out.
d. would increase if the required reserve ratio decreased.
14. When a single bank:
a. makes a loan, it increases the money supply equal to the amount of the loan.
b. has a loan repaid, this will increase the money supply equal to the amount of the loan repayment.
c. is faced with a required reserve ratio of 0.15, then it can loan out 150 percent of its demand deposits.
d. has a reserve requirement of 10 percent, and a customer deposits $1000, the banks can lend out $1000 more.
15. According to the AS/AD model, which of the following describes the cause-effect relationships through which a change in money supply affects the level of economic activity?
a. An increase in the money supply will reduce interest rates, increase investment spending, and increase the level of economic activity.
b. An increase in the money supply will reduce interest rates, decrease investment spending, and decrease the level of economic activity.
c. An increase in interest rates will increase the money supply, decrease investment spending, and decrease the level of economic activity.
d. An increase in aggregate expenditures will decrease the money supply, increase inflation, and decrease the level of economic activity.
16. Which of the following statement is false?
a. An increase in the discount rate signals that the Fed wants the money supply tightened.
b. When the economy is below full employment, expansionary monetary policy will help boost output.
c. The Fed targets interest rates in setting monetary policy.
d. Banks earn more profits when they hold more reserves than are required by law.
17. Which of the following statements concerning fiscal policy is true?
a. Fiscal policy is the manipulation of government spending and taxes in an effort to smooth out the business cycle.
b. Expansionary fiscal policy is designed to reduce the income level in the economy.
c. Contractionary fiscal policy will shift the AE curve upward.
d. The automatic stabilizers destabilize the business cycle.
18. An advantage of expansionary monetary policy is that:
a. inflation may worsen.
b. it decreases unemployment.
c. capital outflow will worsen.
d. the trade deficit may increase.
19. A disadvantage of a contractionary fiscal policy is that:
a. it may help fight inflation.
b. the trade deficit may decrease.
c. it may allow a better monetary/fiscal mix.
d. it risks a recession.
20. The federal budget deficit:
a. is defined as a shortfall of incoming revenues under outgoing payments.
b. is defined as the amount by which the government is taxing more than it is spending.
c. is defined as accumulated deficits minus accumulated surpluses.
d. reduces the amount of government debt.
21. Which of the following statements concerning government debt is true?
a. To make judgments about a nation's debt, you must look at its debt in relation to its assets.
b. Debt is the current annual amount by which the government is spending more than it collects as revenue.
c. Nominal U.S. government debt has been decreasing since World War II.
d. Paying interest on external debt involves a net increase in domestic income.
22. Which of the following statements concerning the deficit and debt is false?
a. Deficits and the debt are often measured relative to GDP because the government's ability to service the debt and to repay the debt depends on GDP.
b. The larger GDP grows, the greater the ability of the government to handle debt.
c. Government debt is different from an individual's debt because much of the government's debt is external and can therefore be reneged on at any time without adverse consequences.
d. A constant debt/GDP ratio in a growing economy is consistent with a continual deficit.
23. Which of the following statements is true?
a. If the U.S. economy moves into a recession, this calls for expansionary monetary policy, which will unfortunately increase the U.S. trade deficit.
b. In order to pay foreigners interest on U.S. debt, the U.S. must eventually import more than it exports.
c. A nation can run a trade surplus for as long as it can borrow from, or sell assets to, foreigners.
d. If some nations are running trade deficits then all other nations are also running trade deficits.
24. If a nation wanted to fix its exchange rate at a level that is higher than the market rate, it would:
a. Increase the private supply of its currency.
b. increase the private demand for its currency by introducing a contractionary monetary policy.
c. try to achieve both an interest rate target and an exchange rate target.
d. deliberately try to cause a recession in its own country.