Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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If
expected inflation is 2%, the nominal interest rate is 7% and the economy is growing at a rate of 3%,
the real interest rate is equal to
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2.
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The
GDP deflator is a. | (Real GDP x
100)/(Nominal GDP). | b. | (Nominal GDP x 100)/(Real GDP). | c. | (Nominal
GDP)/(Real GDP). | d. | (Real GDP)/(Nominal GDP). | e. | none of the
above.
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3.
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According to the loanable funds framework, if businesses see new opportunities to
expand capacity by building new factories, the likely effect will be that: a. | Interest rates
decrease due to an increase in borrowing. | b. | Interest rates decrease due to a greater amount of
saving. | c. | There will be no change in interest
rates. | d. | The total quantity of borrowing and lending will
fall. | e. | None of the above.
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4.
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A
full-time student who did not have a job and was not looking for work would be categorized
as a. | employed | b. | unemployed | c. | not in the labor
force | d. | marginally unemployed | e. | partially
employed
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5.
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Which
of the following statements is consistent with the theory of liquidity preference? a. | When the Federal
Reserve Board of Govenors increases the money supply faster than usual, interest rates
fall. | b. | When the Federal Reserve Board of Governors increases the money
supply faster than usual, interest rates rise. | c. | When the Federal
Reserve Board of Governors increases the money supply faster than usual, interest rates dont
change in the short run, but we will get substantial inflation. | d. | When the Federal
Reserve Board of Governors increases the money supply faster than usual, interest rates dont
change in the short run, but the cost of living is likely to fall. | e. | None of the
above statements are correct.
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6.
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An
open market purchase is where the Fed a. | purchases government bonds from the public, thereby decreasing
the money supply. | b. | purchases government bonds from the public, thereby increasing
the money supply. | c. | increases the money supply by selling government bonds to the
public. | d. | decreases the money supply by selling government bonds to the
public. | e. | none of the above.
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7.
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All
of the following would cause a rightward shift in the short-run aggregate-supply curve
except a. | a change in
labor laws that facilitates labor mobility and thereby raises the productivity of
workers. | b. | the invention of a new and more powerful computer chip that
increases productivity throughout the economy. | c. | a war that
reduces the economys physical capital stock. | d. | new educational
advances that substantially increase the level of human capital. | e. | an increase in
immigration.
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8.
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Which
of the following is not an example of monetary policy? a. | Purchasing of
government bonds in an open market operation. | b. | A change in
required reserve regulations. | c. | A change in the discount rate. | d. | An increase in
the earned income tax credit. | e. | Selling of government bonds in an open market operation.
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9.
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If
nominal wages adjust slowly to changing economic conditions, then a decrease in the price level will
cause the real wage rate to rise and employment and real output to fall. This description of the
impact of a decrease in the price level on real output is used to
explain: a. | a shift in the
aggregate-demand curve. | b. | the negative slope of the aggregate demand
curve. | c. | a shift in the short-run aggregate-supply
curve. | d. | the vertical shape of the long-run supply
curve. | e. | the positive slope of the short-run aggregate-supply
curve.
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10.
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According to the theory of money neutrality which of the following
statements is likely to be true? a. | When the money supply is increased, real wage rates will
rise. | b. | When the money supply is increased, real interest rates will
fall. | c. | When the money supply is increased, real GDP will
increase. | d. | When the money supply is increased, real wage rates will
fall. | e. | When the money supply is increased, nominal wage rates will
rise.
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11.
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If
the reserve ratio is 25 percent, the money multiplier is
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12.
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Private property rights a. | make it more likely that a society will develop
rapidly. | b. | allow an individual to decide what to do with the product of
his/her labor. | c. | force a person not to help support family members in
need. | d. | allow the owners of a firm to decide what to do with any
profits. | e. | all but c.
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13.
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A
country will grow faster if a. | investment in human capital
increases. | b. | saving decreases. | c. | the government
raises taxes on savings. | d. | investment in physical capital
decreases. | e. | all of the above.
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14.
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The
aggregate supply-aggregate demand model suggests that the government can stabilize an economy that
experiences a sudden and unexpected decline in consumer confidence and aggregate demand by:
a. | increasing the
money supply. | b. | decreasing government spending to balance the
budget. | c. | raising taxes. | d. | all of the
above. | e. | none of the above.
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15.
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Suppose that aggregate consumption is $1,000,000, aggregate investment is $200,000,
government spending is $300,000, the value of exports is $100,000, and the value of imports is
$200,000. What is the value of Gross Domestic Product (GDP)? a. | $1,800,000 | b. | $1,500,000 | c. | $1,400,000 | d. | $1,700,000 | e. | $1,600,000
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16.
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If
the dollar value of a countrys exports is greater than the value of its
imports, a. | net foreign
investment is generally positive. | b. | net foreign investment is unaffected. | c. | net foreign
investment is generally negative. | d. | investment flows into the country. | e. | both a and
d.
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