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Macroeconomics 45 Multiple Choice Questions

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Subject: Economics
Due on: 05/21/2015
Posted On: 05/13/2015 07:54 AM

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1. When the U.S. real interest rate falls

a. U.S. purchases of foreign assets and foreign purchases of U.S. assets rise

b. U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall

c. U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise

d. U.S. purchases of foreign assets and foreign purchases of U.S. assets fall


2. Which of the following are currently provisions of the U.S. tax system and discourage saving?

a. some forms of capital income are taxed twice b. if they are large enough, bequests are taxed

c. both a and b d. neither a nor b


3. Which of the following are taxed?

a. both corporate profits and dividends paid to stockholders

b. corporate profits but not dividends paid to stockholders

c. dividends paid to stockholders but not corporate profits

d. neither corporate profits nor dividends paid to stock holders


4. Which of the following both reduce net exports?

a. exports rise, imports rise b. exports rise, imports fall

c. imports rise, exports rise d. imports rise, exports fall


5. Which of the following explains why production rises in most years?

a. increases in the labor force b. increases in the capital stock

c. advances in technological knowledge d. All of the above are correct.


6. You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

b. it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.

c. it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

d. it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.


7. Net exports of a country are the value of

a. goods and services imported minus the value of goods and services exported.

b. goods and services exported minus the value of goods and services imported.

c. goods exported minus the value of goods imported.

d. goods imported minus the value of goods exported.


8. One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

a. its trade surplus fell b. its trade surplus rose.

c. its trade deficit fell. d. its trade deficit rose


9. Other things the same, a higher real interest rate raises the quantity of

a. domestic investment. b. net capital outflow.

c. loanable funds demanded. d. loanable funds supplied.


10. Other things the same, an increase in the price level makes the dollars people hold worth

a. more, so they can buy more. b. more, so they can buy less.

c. less, so they can buy more. d. less, so they can buy less.


11. Other things the same, if the dollar depreciates relative to the Japanese yen, then

a. the exchange rate falls. It will cost fewer yen to travel in the U.S.

b. the exchange rate falls. It will cost more yen to travel in the U.S.

c. the exchange rate rises. It will cost fewer yen to travel in the U.S.

d. the exchange rate rises. It will cost more yen to travel in the U.S.



12. Over the past three decades, the United States has

a. generally had, or been very near to a trade balance.

b. had trade deficits in about as many years as it has trade surpluses.

c. persistently had a trade deficit.

d. persistently had a trade surplus.


13. Phillips found a

a. positive relation between unemployment and inflation in the United Kingdom.

b. positive relation between unemployment and inflation in the United States.

c. negative relation between unemployment and inflation in the United States.

d. negative relation between unemployment and inflation in the United Kingdom.


14. Purchasing-power parity describes the forces that determine

a. prices in the short run.

b. prices in the long run.

c. exchange rates in the short run.

d. exchange rates in the long run.



15. Recessions in China and India would cause

a. the U.S. price level and real GDP to rise. b. the U.S. price level and real GDP to fall.

c. the U.S. price level to rise and real GDP to fall. d. the U.S. price level to fall and real GDP rise


16. Stimulus spending in 2009 was used for

a. building roads and bridges.

b. providing aid to local and state governments.

c. making payments to the unemployed.

d. All of the above are correct.


17. Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

a. buy bonds to raise interest rates.

b. buy bonds to lower interest rates.

c. sell bonds to raise interest rates.

d. sell bonds to lower interest rates.


18. The Employment Act of 1946

a. implies that the government should avoid being a cause of economic fluctuations.

b. implies that the government should respond to changes in the private economy to stabilize aggregate demand.

c. reflected the ideas promoted in Keynes’s influential book, The General Theory of Employment, Interest, and Money.

d. All of the above are correct


19. The Federal Open Market Committee

a. operates with almost complete discretion over monetary policy.

b. is required to increase the money supply by a given growth rate each year.

c. is required to keep the interest rate within a range set by Congress.

d. is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.


20. The Federal Reserve will tend to tighten monetary policy when

a. interest rates are rising too rapidly.

b. it thinks the unemployment rate is too high.

c. the growth rate of real GDP is quite sluggish.

d. it thinks inflation is too high today, or will become too high in the future.



21. The interest-rate effect

a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.

b. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.

c. is responsible for the downward slope of the money-demand curve.

d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.


22. The investment component of GDP measures spending on

a. financial assets such as stocks and bonds. During recessions it declines by a relatively large amount.

b. residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.

c. financial assets such as stocks and bonds. During recessions it declines by a relatively small amount.

d. residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.



23. The misery index is calculated as the

a. inflation rate plus the unemployment rate.

b. unemployment rate minus the inflation rate.

c. actual inflation rate minus the expected inflation rate.

d. natural unemployment rate times the inflation rate


24. The wealth effect stems from the idea that a higher price level

a. increases the real value of households’ money holdings.

b. decreases the real value of households’ money holdings.

c. increases the real value of the domestic currency in foreign-exchange markets.

d. decreases the real value of the domestic currency in foreign-exchange markets.


25. When Congress reduces spending in order to balance the government’s budget, it needs to consider

a. both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.

b. only the short-run effects on aggregate demand and aggregate supply.

c. only the long-run effects on saving and growth.

d. only the long-run effects on aggregate demand and aggregate supply.






26. When the price level falls the quantity of

a. consumption goods demanded rises, while the quantity of net exports demanded falls.

b. consumption goods demanded and the quantity of net exports demanded both rise.

c. consumption goods demanded and the quantity of net exports demanded both fall.

d. consumption goods demanded falls, while the quantity of net exports demand rises.


27. Disinflation is a reduction in

a. the price level. b. the inflation rate.

c. the consumer price index. d. All of the above are correct.


28. A country sells more to foreign countries than it buys from them. It has

a. a trade surplus and positive net exports. b. a trade surplus and negative net exports.

c. a trade deficit and positive net exports. d. a trade deficit and negative net exports.


29. According to classical macroeconomic theory,

a. the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.

b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.

c. output is determined by the supplies of capital and labor and the available production technology.

d. All of the above are correct.


30. According to John Maynard Keynes,

a. the demand for money in a country is determined entirely by that nation’s central bank.

b. the supply of money in a country is determined by the overall wealth of the citizens of that country.


c. the interest rate adjusts to balance the supply of, and demand for, money.

d. the interest rate adjusts to balance the supply of, and demand for, goods and services.


31. An event that directly affects firms’ costs of production and thus the prices they charge is called

a. a Phillips contraction. b. an inflationary spiral.

c. a demand shock. d. a supply shock.


32. An increase in the budget deficit causes domestic interest rates

a. and investment to rise. b. to rise and investment to fall.

c. to fall and investment to rise. d. and investment to fall.


33. Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country’s exports increase?

a. Spain’s b. the U.S.’s c. Spain’s and the U.S.’s d. neither Spain’s nor the U.S.’s




34. Closely watched indicators such as the inflation rate and unemployment are released each month by the

a. Bureau of the Budget. b. Bureau of Labor Statistics.

c. Department of the Treasury. d. Presidents Council of Economic Advisors.



35. During a recession the economy experiences

a. rising employment and income. b. rising employment and falling income.

c. rising income and falling employment. d. falling employment and income.




36. 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 the long run.


37. Fiscal policy refers to the idea that aggregate demand is affected by changes in

a. the money supply. b. government spending and taxes.

c. trade policy. d. All of the above are correct.


38. If a country raises its budget deficit, then its

a. net capital outflow and net exports rise. b. net capital outflow rises and net exports fall.

c. net capital outflow falls and net exports rise. d. net capital outflow and net exports fall.




39. If a government has a budget surplus, then public saving

a. is positive and increases national saving.

b. is positive but decreases national saving.

c. is negative and decreases national saving.

d. is negative but increases national saving.



40. If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

a. increasing the money supply, which raises interest rates.

b. increasing the money supply, which lowers interest rates.

c. decreasing the money supply, which raises interest rates.

d. decreasing the money supply, which lowers interest rates.


41. If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs


a. $1.80.

b. $4.80.

c. $5.

d. None of the above is correct.


42. If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

a. interest rates and output would rise.

b. interest rates would rise and output would fall.

c. interest rates would fall and output would rise.

d. interest rates and output would fall.


43. International trade

a. raises the standard of living in all trading countries.

b. lowers the standard of living in all trading countries.

c. leaves the standard of living unchanged.

d. raises the standard of living for importing countries and lowers it for exporting countries.


44. Many U.S. business leaders argue that the current state of U.S. net exports is the result of


a. U.S. export subsidies.

b. free trade policies of foreign governments.

c. unproductive U.S. workers.

d. unfair foreign competition.




45. Monetary policy

a. can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.

b. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.

c. cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.

d. cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.


Tags questions choice multiple macroeconomics rate exports rise rates fall trade goods supply demand money inflation capital aggregate real foreign price level unemployment increases aets factory policy outflow value demanded saving purchases negative quantity implemented

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